Palmer Kearney Mesa Properties, LP v. City of San Diego

1

2

3

4

5

6

7

8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

10

Case No.: 23-cv-1755-DMS-BJC

11 PALMER KEARNY MESA

PROPERTIES, LP, a California limited

12 ORDER GRANTING DEFENDANT’S

partnership; GH PALMER, INC., a

MOTION TO DISMISS

13 California corporation,

14 Plaintiffs,

v.

15

CITY OF SAN DIEGO, a California

16

municipal corporation,

17

Defendant.

18

19 Pending before the Court is Defendant City of San Diego’s motion to dismiss for

20 lack of jurisdiction or for failure to state a claim. (ECF No. 13.) Plaintiffs challenge the

21 validity of the City of San Diego’s Inclusionary Affordable Housing Regulation, San Diego

22 Mun. Code §§ 142.1301–14. For the reasons that follow, the City’s motion is granted.

23 I. BACKGROUND

24 A. The IAHR

25 The City of San Diego (“the City”) first adopted an inclusionary housing ordinance

26 known as the Inclusionary Affordable Housing Regulations (“IAHR”) in 2003 with the

27 purpose of “encourag[ing] diverse and balanced neighborhoods with housing available for

28 households of all income levels.” San Diego Mun. Code § 142.1301. The City explained

1 that the intent behind the IAHR was to “ensure that when developing the limited supply of

2 developable land, housing opportunities for persons of all income levels are provided.” Id.

3 The IAHR has been amended several times since 2003. In its current form, the IAHR

4 requires developers to set aside 10% of residential units in certain new developments for

5 low-income households “at cost, including an allowance for utilities, that does not exceed

6 30 percent of 60 percent of median income.” Id. § 142.1304(a). This requirement applies

7 to new developments of five or more units in the “coastal zone” and to new developments

8 of ten or more units elsewhere in the City. Id. § 142.1302. The San Diego Housing

9 Commission determines qualifications for occupancy of IAHR affordable units. Id. §

10 142.1312. The affordable units remain restricted for “a period of not less than 55 years”

11 by covenants recorded in the deeds. Id. §§ 142.1304(f), 142.1313. In lieu of setting aside

12 restricted units, the IAHR allows a developer to pay “in-lieu fees” which are “deposited

13 into the Affordable Housing fund.” Id. § 142.1306(d). The “in-lieu fees” are currently

14 assessed at $25.00 per square foot of proposed construction. (Compl. ¶ 68, ECF No. 1.1)

15 There are three categories of exemptions from IAHR requirements:

16 (1) “Residential development located in the North City Future Urbanizing Area that is

17 within Proposition A Lands of the City of San Diego or any project located in an

18 area of the City that was previously located in the North City Future Urbanizing

19 Area,” San Diego Mun. Code § 142.1303(a);

20 (2) “Rehabilitation of an existing building that does not result in a net increase of

21 dwelling units on the premises,” id. § 142.1303(b); and

22 (3) “Density bonus units,” id. § 142.1303(c), if the development meets the minimum

23 thresholds set by California Government Code §§ 65915–18.

24 The City may also approve a “variance, waiver, adjustment, or reduction” on two grounds.

25

26

1 “Effective July 1, 2024, the Inclusionary In Lieu Fee shall be $25.00 per square foot of net building area

27 of unrestricted market-rate residential development. The Inclusionary In Lieu Fee shall be updated

annually based on the annual increase in the Construction Costs Index (CCI) published by Engineering

28

1 Id. § 142.1311. First, the City may grant a modification if the decision maker makes all

2 the following findings:

3 (1) Special circumstances, unique to that development, justify granting the

variance, waiver, adjustment, or reduction;

4

(2) The development would not be feasible without the modification;

5 (3) A specific and substantial financial hardship would occur if the variance,

waiver, adjustment, or reduction were not granted; and

6

(4) No alternative means of compliance are available which would be more

7 effective in attaining the purposes of this Division than the relief

requested.

8

9 Id. § 142.1311(a) (emphasis omitted). Second the City can grant a modification if it “makes

10 findings that applying the requirements” of the IAHR “would take property in violation of

11 the United States or California Constitutions.” Id. § 142.1311(b).

12 B. Plaintiffs and the Kearny Mesa Project

13 The two plaintiffs in this case are residential property developers: (1) Palmer Kearny

14 Mesa Properties, L.P., a California limited partnership doing business in San Diego County

15 (“Palmer Kearny Mesa Properties”), (Compl. ¶ 13), and (2) GH Palmer, Inc., a California

16 corporation doing business across California including San Diego County, (id. ¶ 14)

17 (collectively, “Plaintiffs” or “Palmer”). Palmer is engaged in residential property

18 development across San Diego County and California. (Id. ¶ 15.) Relevant here, Palmer

19 seeks to build a large mixed-use development consisting of 1,642 residential units and

20 approximately 32,000 square feet of retail space (“Kearny Mesa Project” or “Project”)

21 located at Clairemont Mesa Boulevard, Convoy Street, and Raytheon Road, within the City

22 of San Diego. (Id. ¶¶ 16–17.) The property is in an area zoned for the kind of multi-family

23 residential development this Project proposes and accordingly, “no further quasi-legislative

24 or discretionary City approvals are required, and the Project is considered as a by-right

25 proposal, subject only to further ministerial review by City Staff.” (Id. ¶ 16.)

26 In December 2022, Palmer alleges it submitted a detailed plan to the City for review

27 as part of its application for building permits. (Id. ¶ 74.) The application indicated the

28 Project should be “exempt from” the IAHR’s requirement of setting aside 10% of newly

1 constructed units as affordable units or payment of in-lieu fees, but also indicated that “in

2 the absence of any other feasible alternative or opportunity to object,” Palmer would

3 comply with the IAHR by payment of “in-lieu fees.” (Id.) On June 6, 2023, the City’s

4 preliminary review of the Project “disregarded Plaintiffs’ claim of exemption” and

5 indicated the Project would be “subject to the inclusionary affordable housing fee” per San

6 Diego Mun. Code § 142.1306. (Id. ¶ 75.) Palmer wrote to the City seeking clarification

7 on its failure to acknowledge Plaintiffs’ request for an exemption. (Id. ¶ 76.) On August

8 11, 2023, the City responded in writing asking Palmer why it believed the Project qualified

9 for an exemption. Palmer alleges this response indicates “that compliance with [IAHR]

10 requirements is necessary as a condition precedent to the City’s issuance of building

11 permits.” (Id.) With that, Plaintiffs allege they “have exhausted administrative remedies,

12 to the extent that any such remedies are available, feasible, and not futile.” (Id. ¶ 77.)

13 C. Claims and Procedural History

14 The Complaint raises five claims for relief. First, Plaintiffs raise a claim under 42

15 U.S.C. § 1983 alleging the IAHR effects a “taking” of private property in violation of the

16 Fifth and Fourteenth Amendments to the United States Constitution—both facially and as

17 applied by the City against their Project. Plaintiffs articulate three theories of relief under

18 the Takings Clause: (a) a per se physical taking, (b) unconstitutional conditions, and (c) a

19 regulatory taking. Second, Plaintiffs raise a claim under 42 U.S.C. § 1983 alleging a

20 violation of the Due Process and Equal Protection Clauses of the Fourteenth Amendment.

21 Third, Plaintiffs allege an unconstitutional taking in violation of the California

22 Constitution, Article I, Section 19, and articulate three theories analogous to those raised

23 under their federal takings claim. Fourth, Plaintiffs allege a violation of their right to Due

24 Process and Equal Protection under Article I, Section 7 of the California Constitution. Fifth

25 and finally, Plaintiffs allege violations of various state laws, including: (a) Proposition 26,

26 codified at Article XIII C, Section 1(e) of the California Constitution; (b) a “fail[ure] to

27 justify” the IAHR fees and exactions “as required by the Constitutions of the United States

28 and the State of California”; (c) the California Mitigation Fee Act, Cal. Gov’t Code §§

1 66000–06; and (d) improper calculation of costs justifying the exactions in the IAHR.

2 The City filed its motion to dismiss on March 3, 2024. (Mot., ECF No. 13.) On

3 April 1, 2024, Plaintiffs filed their response in opposition, (Opp’n, ECF. No. 13), to which

4 the City replied on April 22, 2024, (Reply, ECF No. 15). The Court heard oral argument

5 on May 17, 2024, (ECF No. 18), and took the motion under submission.

6 II. LEGAL STANDARD

7 A. Rule 12(b)(1)

8 Federal Rule of Civil Procedure 12(b)(1) permits a party to seek dismissal of an

9 action for lack of subject-matter jurisdiction. “Because standing and ripeness pertain to

10 federal courts’ subject matter jurisdiction, they are properly raised in a Rule 12(b)(1)

11 motion to dismiss.” Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th

12 Cir. 2010). Rule 12(b)(1) jurisdictional challenges can be either facial or factual. Safe Air

13 for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). When a motion to dismiss

14 attacks subject-matter jurisdiction on the face of the complaint, the court assumes the

15 factual allegations in the complaint are true and draws all reasonable inferences in the

16 plaintiff’s favor. Doe v. Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009). The standards set

17 forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556

18 U.S. 662 (2009) governing motions to dismiss under Federal Rule of Civil Procedure

19 12(b)(6), apply with equal force to facial jurisdictional challenges under Rule 12(b)(1). See

20 Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012) (applying Iqbal

21 standard to challenge for lack of Article III standing under Rule 12(b)(1)). Thus, the

22 complaint must allege “sufficient factual matter, accepted as true,” Iqbal, 556 U.S. at 678,

23 to show a right to invoke the jurisdiction of a federal court.

24 In a factual challenge, the moving party “disputes the truth of the allegations that,

25 by themselves, would otherwise invoke federal jurisdiction.” Safe Air for Everyone, 373

26 F.3d at 1039. “When the defendant raises a factual attack, the plaintiff must support her

27 jurisdictional allegations with ‘competent proof’ under the same evidentiary standard that

28 governs in the summary judgment context.” Leite v. Crane Co., 749 F.3d 1117, 1121 (9th

1 Cir. 2014) (quoting Hertz Corp. v. Friend, 559 U.S. 77, 96–97 (2010)). The court need not

2 accept the allegations in the complaint as true. Safe Air for Everyone, 373 F.3d at 1039.

3 The plaintiff bears the burden of proving subject-matter jurisdiction by a preponderance of

4 the evidence. Leite, 749 F.3d at 1121.

5 The City “has converted” its Rule 12(b)(1) motion “into a factual motion by

6 presenting affidavits or other evidence” attached to the motion. Safe Air for Everyone, 373

7 F.3d at 1039 (quoting Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th

8 Cir. 2003)). (See Decl. of Elise Lowe in Supp. of Def.’s Mot. to Dismiss (“Lowe Decl.”),

9 ECF No. 13-2; Decl. of Lee H. Roistacher in Supp. of Def.’s Mot. to Dismiss (“Roistacher

10 Decl.”), ECF No. 13-3.) Accordingly, the evidentiary standard governing summary

11 judgment applies, Leite, 749 F.3d at 1121, and “the party opposing the motion must furnish

12 affidavits or other evidence necessary to satisfy its burden of establishing” constitutional

13 ripeness,” Safe Air for Everyone, 373 F.3d at 1039 (quoting Savage, 343 F.3d at 1039 n.2).

14 Plaintiffs have presented affidavits and exhibits attached to their response in opposition to

15 the City’s motion. (Decl. of Geoff Palmer in Supp. of Pls.’ Opp’n to Def.’s Mot. to Dismiss

16 (“Palmer Decl.”), ECF No. 14-1.) The City may prevail if it can show by a preponderance

17 of evidence that “there is no genuine dispute as to any material fact,” Fed. R. Civ. P. 56(a),

18 that this Court lacks subject matter jurisdiction.

19 B. Rule 12(b)(6)

20 Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss on the

21 grounds that a complaint “fail[s] to state a claim upon which relief can be granted.” To

22 survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted

23 as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678

24 (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff

25 pleads factual content that allows the court to draw the reasonable inference that the

26 defendant is liable for the misconduct alleged.” Id. “Determining whether a complaint

27 states a plausible claim for relief will … be a context-specific task that requires the

28 reviewing court to draw on its judicial experience and common sense.” Id. at 679. “Factual

1 allegations must be enough to raise a right to relief above the speculative level.” Twombly,

2 550 U.S. at 555. If Plaintiff “ha[s] not nudged” her “claims across the line from

3 conceivable to plausible,” the complaint “must be dismissed.” Id. at 570.

4 In reviewing the plausibility of a complaint on a motion to dismiss, a court must

5 “accept factual allegations in the complaint as true and construe the pleadings in the light

6 most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co.,

7 519 F.3d 1025, 1031 (9th Cir. 2008). But courts are not “required to accept as true

8 allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable

9 inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

10 III. DISCUSSION

11 A. Evidentiary Matters

12 The City asks the Court to take judicial notice of various San Diego city ordinances

13 as enacted and amended at different times. (Def.’s Req. for Judicial Notice (“RJN”), ECF

14 No. 13-4.) Plaintiffs do not oppose. The Court finds such matters appropriate for judicial

15 notice and grants the request. See Fed. R. Evid. 201(b) (court may take judicial notice of

16 facts “not subject to reasonable dispute” and which “can be accurately and readily

17 determined from sources whose accuracy cannot reasonably be questioned”); Tollis v.

18 County of San Diego, 505 F.3d 935, 938 n.1 (9th Cir. 2007) (“Municipal ordinances are

19 proper subjects for judicial notice.”).

20 Next, the Court turns to the extensive evidentiary objections each party has raised to

21 the opposing party’s affidavits and exhibits. (Pls.’ Evid. Objs. to Lowe Decl., ECF No. 14-

22 2; Def.’s Evid. Objs. to Palmer Decl., ECF No. 15-1.) Each party has filed a response in

23 opposition to the opposing party’s objections. (Def.’s Resps. to Pls.’ Evid. Objs., ECF No.

24 15-2; Pls.’ Resp. to Def.’s Evid. Objs., ECF No. 17.) The Court need not rule on all

25 objections raised and will address only those objections that become relevant to the Court’s

26 analysis in footnotes below. All other objections not addressed are overruled as moot.

27 B. Jurisdiction

28 The City raises three jurisdictional challenges. The City argues (1) that Plaintiffs

1 lack Article III standing to challenge the entirety of the IAHR and only have standing to

2 challenge the provisions that have been applied to them, (Mot. at 19); (2) that Plaintiffs’

3 challenge is constitutionally unripe “because the City has made no final decision” on the

4 Project and how the IAHR will apply to the Project, (id. at 22); and (3) that Plaintiffs’

5 failure to exhaust administrative remedies is a jurisdictional bar to the state law claims,

6 Counts 3–5, (id. at 24). The Court will address these arguments below. But first, the Court

7 will address whether to construe Plaintiffs’ claims as facial or as-applied challenges

8 because the distinction is relevant to the ripeness analyses.

9 1. Facial Versus As-Applied

10 Plaintiffs plead as-applied takings claims only (Counts 1 and 3), but that their equal

11 protection and due process claims (Counts 2 and 4) can be construed as both as-applied

12 and facial. A facial takings challenge involves “a claim that the mere enactment of [an

13 ordinance] constitutes a taking,” while an as-applied challenge involves “a claim that the

14 particular impact of government action on a specific piece of property requires the payment

15 of just compensation.” Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470,

16 494 (1987). There is “an important distinction” between facial and as-applied takings

17 claims as each type of claim “raises different ripeness and statute of limitations issues.”

18 Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 686 (9th Cir. 1993), overruled on other

19 grounds by Knick v. Township of Scott, 588 U.S. 180 (2019). An as-applied challenge is

20 not ripe “until the government entity charged with implementing the regulations has

21 reached a final decision regarding the application of the regulations to the property at

22 issue.” Williamson Cnty. Reg’l Plan. Comm’n v. Hamilton Bank of Johnson City, 473 U.S.

23 172, 186 (1985), overruled on other grounds by Knick, 588 U.S. 180. By contrast, “[i]t is

24 fairly well-settled in this Circuit that … the ‘finality’ requirement[] is not germane to facial

25 taking claims” because such claims allege that the enactment of the challenged regulation

26 itself constitutes a final decision that harmed the plaintiff. Sinclair Oil Corp. v. County of

27 Santa Barbara, 96 F.3d 401, 406 (9th Cir. 1996), overruled on other grounds by Knick,

28 588 U.S. 180. For standing and ripeness purposes, the alleged injury underlying each type

1 of challenge is different: the injury underlying a facial challenge is the very enactment of

2 the challenged regulation whereas the injury underlying an as-applied challenge is the

3 administrative action applying that regulation.

4 Although Palmer nominally brings both facial and as-applied takings challenges, the

5 Court construes them to be as-applied only. First, Plaintiffs do not distinguish between

6 their facial and as-applied claims in the Complaint. Counts 1 and 3 and the Parties’ briefing

7 focus on the application of the IAHR to one specific project. The takings claims arise from

8 Plaintiffs’ submission of an application for building permit. Plaintiffs also fail to plausibly

9 allege that “no set of circumstances exists under which” the IAHR may validly apply,

10 which must be shown to prevail on a facial challenge. United States v. Salerno, 481 U.S.

11 739, 745 (1987); see 74 Pinehurst LLC v. New York, 59 F.4th 557, 564 (2d Cir. 2023), cert.

12 denied, 218 L. Ed. 2d 66 (Feb. 20, 2024) (quoting Rent Stabilization Ass’n of City of N.Y.

13 v. Dinkins, 5 F.3d 591, 595 (2d Cir. 1993)) (holding that facial takings claim failed because

14 the plaintiff did not plausibly allege “that ‘no set of circumstances exists under which the

15 [challenged New York rent stabilization law] would be valid.’”).2 The Court therefore

16 interprets the Complaint as raising an as-applied takings claim only.3 However, Plaintiffs’

17 equal protection and due process challenges can be construed as both facial and as-applied

18 because they include allegations concerning both the City’s “actions” in its application of

19 the IAHR (see Compl. ¶¶ 115–16) and the IAHR’s facial lack of a rational relationship to

20 a legitimate legislative purpose (see id. ¶¶ 118–19).

21 / / /

22

23

2 The Court also observes that a facial challenge to the IAHR may now be barred by the statute of

24

limitations. See Colony Cove Props., LLC v. City of Carson, 640 F.3d 948, 956 (9th Cir. 2011)

25 (California’s two-year statute of limitations governs facial takings claims brought under 42 U.S.C. § 1983

and runs from the time of enactment). It appears the provision of the IAHR challenged here was enacted

26 by July 1, 2020. (Compl. ¶ 56.)

3 Alternatively, even if Counts 1 and 3 can be interpreted as articulating separate facial takings challenges

27 under the federal or California constitutions, the Court would grant the motion to dismiss those claims

based on the same reasons stated in this Section under Federal Rule of Civil Procedure 12(b)(6) for failing

28

1 2. Constitutional Ripeness

2 “Standing and ripeness under Article III are closely related.” Colwell v. Dep’t of

3 Health & Human Servs., 558 F.3d 1112, 1123 (9th Cir. 2009). A claim is constitutionally

4 ripe if it “present[s] concrete legal issues … in actual cases, not abstractions.” Id. (quoting

5 United Pub. Workers v. Mitchell, 300 U.S. 75, 89 (1947)). “But whereas ‘standing is

6 primarily concerned with who is a proper party to litigate a particular matter, ripeness

7 addressees when that litigation may occur.’” Lee v. Oregon, 107 F.3d 1382, 1387 (9th Cir.

8 1997). The constitutional ripeness inquiry generally “coincides squarely with standing’s

9 injury in fact prong.” Thomas v. Anchorage Equal Rts. Comm’n, 220 F.3d 1134, 1138 (9th

10 Cir. 2000) (en banc). A claim is constitutionally ripe if a court determines the plaintiff’s

11 “stake in the legal issues is concrete rather than abstract.” Colwell, 558 F.3d at 1123.

12 As explained, “a claim that the application of government regulations effects a

13 taking of a property interest is not ripe until the government entity charged with

14 implementing the regulations has reached a final decision regarding the application of the

15 regulations to the property at issue.” Williamson County, 473 U.S. at 186.4 A plaintiff

16 “must show … that ‘there [is] no question … about how the regulations at issue apply to

17 the particular land in question.’” Pakdel v. City and County of San Francisco, 594 U.S.

18 474, 478 (2021) (per curiam) (quoting Suitum v. Tahoe Reg’l Plan. Agency, 520 U.S. 725,

19 739 (1997)) (alteration in original). The finality requirement “is ‘relatively modest’ and

20 does not require property owners to pursue every administrative channel theoretically

21 available to them.” Gearing v. City of Half Moon Bay, 54 F.4th 1144, 1148 (9th Cir. 2022),

22

23

24

4 In Williamson County (1985), the Supreme Court established a two-part test for determining whether an

25 as-applied takings claim is ripe. First, “the government entity charged with implementing the regulations”

must have “reached a final decision regarding the application of the regulations to the property at issue”

26 (finality requirement). 473 U.S. at 186. Second, the plaintiff must attempt to seek “compensation through

the procedures the State has provided,” id. at 194, if the State “provides an adequate procedure for seeking

27 just compensation,” (state-litigation requirement) id. at 195. In Knick v. Township of Scott (2019), the

Supreme Court overruled the state-litigation requirement, Knick, 588 U.S. at 205–06, but left the finality

28

1 cert. denied, 144 S. Ct. 95 (2023) (quoting Pakdel, 594 U.S. at 478).

2 The City argues that Plaintiffs’ takings claim is unripe “because the City has made

3 no final decision” on the Project, and because Plaintiffs have not “pursued an exemption

4 [per San Diego Municipal Code § 142.1303] or a variance, waiver, adjustment or reduction

5 of the IAHR requirements [per Municipal Code §§ 142.1310–11].” (Mot. at 22.) In

6 response, Plaintiffs argue: (a) “there is no question about the [C]ity’s position”; (b) the City

7 itself has conceded that the Project “does not fit the criteria for an ‘exemption’” from the

8 IAHR; and (c) “it is apparent from the text of the [IAHR] … that further pursuit of

9 administrative relief, whether by waiver or variance, would be futile.” (Opp’n at 15.) The

10 Court concludes Plaintiffs have not satisfied the Williamson County finality requirement

11 because (1) the City has not reached a conclusive determination, and (2) avenues remain

12 available for the City to clarify or change its position.

13 a. No Conclusive Determination

14 The City has made no conclusive determination on how the IAHR will apply to the

15 Project. The Court begins with an overview of Pakdel. The plaintiffs in Pakdel were a

16 married couple with a partial ownership interest in a multiunit residential building in San

17 Francisco. 594 U.S. at 475. The building was organized as a tenancy-in-common, meaning

18 all owners theoretically held rights to possess and use the entire property. Id. The City of

19 San Francisco established a condominium conversion program by which such tenancy-in-

20 common owners could convert their interest into ownership of their individual units. Id. at

21 476. One of the conditions for conversion was that nonoccupant owners who rented their

22 unit had to offer a lifetime lease to the tenant. Id. The plaintiffs agreed to this condition,

23 and the city approved their application for conversion. Id. Months later, the plaintiffs

24 asked the city to excuse them from executing a lifetime lease or to compensate them for

25 the value of the lifetime lease. Id. The city denied the request and advised that failure to

26 execute the lifetime lease could result in an enforcement action. Id.

27 The Pakdel plaintiffs filed suit in federal court claiming, inter alia, that the lifetime

28 lease requirement amounted to a regulatory taking. Id. Relying on then-binding

1 precedent—Williamson County’s state-litigation requirement—the district court dismissed

2 the claim because the plaintiffs had not sought compensation in state court before filing the

3 takings claim in federal court. Id. at 476–77 (citing Williamson County, 473 U.S. at 194).

4 While the Pakdel plaintiffs’ appeal was pending, the Supreme Court decided Knick which

5 overruled Williamson County’s state-litigation requirement. Id. at 477. The Ninth Circuit

6 nonetheless affirmed the dismissal on a different ground. It reasoned that the City’s

7 decision on how the lifetime lease requirement applied to the plaintiffs’ unit “was not truly

8 ‘final’” because the plaintiffs “had made a belated request for an exemption” six months

9 after obtaining final approval for the conversion instead of “timely” seeking an exemption

10 through prescribed procedures. Id. at 477–78.

11 The Supreme Court granted certiorari, vacated the Ninth Circuit’s judgment, and

12 remanded. Id. at 481. It explained “there is no question about the city’s position:

13 Petitioners must execute the lifetime lease or face an enforcement action.” Id. at 478

14 (internal quotations omitted). It continued: “And there is no question that the government’s

15 ‘definitive position on the issue [has] inflict[ed] an actual, concrete injury’ of requiring

16 petitioners to choose between surrendering possession of their property or facing the wrath

17 of the government.” Id. at 478–79 (quoting Williamson County, 473 U.S. at 193)

18 (alterations in original). Importantly, the Supreme Court explained that “a plaintiff’s

19 failure to properly pursue administrative procedures may render a claim unripe if avenues

20 still remain for the government to clarify or change its decision.” Id. at 480. But the Court

21 found no such avenues remained and that the city had “adopted its final position.” Id. “For

22 the limited purpose of ripeness,” that was “sufficient.” Id. at 481.

23 But here, unlike Pakdel, the City has not “adopted [a] final position” on Plaintiffs’

24 application for a building permit. The factual record before the Court shows Palmer’s

25 “initial project application” was “deemed complete” on March 3, 2023, but it has not

26 received final approval. (Lowe Decl. ¶ 6.) As of March 1, 2024 (date of the Lowe

27 Declaration), the application remained “pending.” (Id.) On June 6, 2023, the City of San

28 Diego Development Services Department (“DSD”) “provided a Project Issues Report” and

1 Comment 00157 within that Report stated: “Project proposes to pay the inclusionary

2 affordable housing fee per [Municipal Code §] 142.1306. Staff to add housing fees for

3 each phase as units are proposed.” (Id. ¶ 11 & Ex. 2.5) This comment appearing in the

4 City’s preliminary review can hardly be characterized as a “conclusive position” on how

5 the IAHR applies to the Project. Pakdel, 594 U.S. at 480. Not even Plaintiffs seem to

6 think so because on August 7, 2023, they sent a letter to the City asking it “to clarify”

7 Comment 00157 and to “confirm” that the Project is exempt from the IAHR requirements.

8 (Id. ¶ 12, Ex. 36; see Palmer Decl. ¶ 6, “Plaintiffs sent written inquiries to the City seeking

9 clarification as to the City’s failure to acknowledge or accept Plaintiffs’ prior request for

10 exemption …,” emphasis added.) On August 10, 2023, a City DSD employee responded

11 asking Plaintiffs to “expand” on why they “believe the project is exempt from inclusionary

12 housing requirements.” (Id. ¶ 13, Ex. 4.) The City received no response. (Id. ¶¶ 16–17.)

13 This is not a situation where the City has made its position clear. Compare Lustig v. City

14 of Laguna Beach, No. 8:22-CV-01945-DOC, 2023 WL 6370231, at *5 (C.D. Cal. Aug. 10,

15 2023) (letter stating “unless the project can be redesigned to eliminate any such

16 inconsistency, the project would appear to be rendered infeasible” was only a “preliminary

17 review” and “not a final determination that the project was infeasible”) (first emphasis

18

19

20

5 The Court overrules Plaintiffs’ hearsay objections to Paragraphs 10–13 and 16 and Exhibits 1–4 (ECF

21 No. 14-2). Hearsay is a statement made outside of the current trial or hearing that is offered in evidence

to prove the truth of the matter asserted therein. Fed. R. Evid. 801(c). Hearsay is generally “inadmissible

22 unless it is defined as non-hearsay under Federal Rule of Evidence 801(d) or falls within a hearsay

exception under Rules 803, 804 or 807.” Orr v. Bank of Am., NT & SA, 285 F.3d 764, 778 (9th Cir. 2002)

23 (citing Fed. R. Evid. 802). However, “[i]f the contents of a document can be presented in a form that

would be admissible at trial—for example, through live testimony by the author of the document—the

24

mere fact that the document itself might be excludable hearsay provides no basis for refusing to consider

25 it” for purposes of the pending motion. Sandoval v. County of San Diego, 985 F.3d 657, 666 (9th Cir.

2021). Here, Ms. Elyse Lowe, the author of the declaration would “competently testify” to the contents

26 of her declaration at trial “[i]f called as a witness.” (Lowe Decl. ¶ 3.) Additionally, Exhibits 1–4 are not

hearsay because they are not offered for the “truth” of any matter asserted within them. But even if it

27 were hearsay, they would fall under one or more exceptions to the rule against hearsay. See, e.g., Fed. R.

Evid. 803(6) (records of a regularly conducted activity); id. 803(8) (public records).

28

1 added) with Evans Creek, LLC v. City of Reno, No. 3:20-CV-00724-MMD, 2021 WL

2 4173919, at *7 (D. Nev. Sept. 14, 2021), aff’d, No. 21-16620, 2022 WL 14955145 (9th

3 Cir. Oct. 26, 2022) (plaintiff satisfied finality requirement because city denied building

4 permit application which was a conclusive “determin[ation] that Plaintiff cannot, in

5 practice, develop the Property” as he desired) and BJA Enters. LLC v. City of Yuma, No.

6 20-CV-01901 ROS, 2021 WL 3912857, at *2 (D. Ariz. Aug. 31, 2021) (city reached a final

7 decision where it prospectively informed property owner in writing that it “would not issue

8 any approvals for construction on the property” and “further discussions of development

9 were futile”). “Here,” by contrast, “it is entirely in question how the regulations at issue

10 apply” to Plaintiff’s project because the City has made no final “determination, de facto or

11 otherwise, on the merits of” Plaintiffs’ application. DiVittorio v. County of Santa Clara,

12 No. 21-cv-3501-BLF, 2022 WL 409699, at *7 (N.D. Cal. Feb. 10, 2022), appeal dismissed,

13 No. 22-15370, 2022 WL 4103276 (9th Cir. July 13, 2022).

14 In addition, Plaintiffs do not face “the wrath of the government” as the Pakdel

15 plaintiffs did. 594 U.S. at 479. In Pakdel, the city of San Francisco had already granted

16 final approval to the plaintiffs’ application for condominium conversion and threatened an

17 enforcement action if the plaintiffs failed to follow through with executing a lifetime lease.

18 Id. Plaintiffs face no enforcement action here. Finally, the City has affirmed by declaration

19 that “[n]o final decision has been made … on the issue of whether the inclusionary housing

20 requirements apply to” Plaintiffs’ project. (Lowe Decl. ¶ 21.7) Accordingly, the City has

21

22

7 The Court overrules Plaintiffs’ objections to Paragraphs 13–15 and 20–22 for improper lay testimony.

23 (ECF No. 14-2, at 4–6, 11–13.) Federal Rule of Evidence 701 provides that a lay witness may testify “in

the form of an opinion” if it is “(a) rationally based on the witness’s perception; (b) helpful to clearly

24

understanding the witness’s testimony or to determining a fact in issue; and (c) not based on scientific,

25 technical, or other specialized knowledge.” Fed. R. Evid. 701. “A lay witness’s opinion testimony

necessarily draws on the witness’s own understanding, including a wealth of personal information,

26 experience, and education, that cannot be placed before the jury.” United States v. Gadson, 763 F.3d

1189, 1208 (9th Cir. 2014). The assertions in Paragraphs 13–15 and 20–22 consist of observations made

27 in the declarant’s capacity as director of the City of San Diego’s Development Services Department. To

the extent some assertions constitute opinions—e.g., Paragraph 14 (“Therefore, the project does not appear

28

1 made no conclusive determination on how and to what extent the IAHR requirements will

2 apply to the Project here.

3 b. Avenues Remaining for Clarification

4 Further, avenues remain available for Plaintiffs to clarify how the IAHR will apply

5 to their Project. Although the Supreme Court made clear that “administrative ‘exhaustion

6 of state remedies’ is not a prerequisite for a takings claim,” Pakdel, 594 U.S. at 480

7 (quoting Knick, 588 U.S. at 185), and that “the finality requirement is relatively modest,”

8 id. at 478, it also explained that plaintiffs must “pursue administrative procedures” if the

9 government has not “reached a conclusive position” and “avenues still remain for the

10 government to clarify or change its decision,” id. at 480; see Patel v. City of South El

11 Monte, No. 21-55546, 2022 WL 738625 (9th Cir. Mar. 11, 2022) (unpublished) (to “satisfy

12 the finality requirement,” “courts generally require that a plaintiff seek a variance or

13 exemption” if one is available). It is clear that at least one such avenue remains here:

14 Plaintiffs may seek a “variance, waiver, adjustment or reduction” as provided by San Diego

15 Municipal Code §§ 142.1310–11.

16 Plaintiffs argue that it would be futile to pursue such relief because “the

17 inapplicability of the Code’s very limited provisions for the City to possibly authorize a

18 waiver or variance is apparent from the face of the Code.” (Opp’n at 9.) This is not so—

19 “even if there are reasons to think that an outcome unfavorable to plaintiffs is probable.”

20 Little Woods Mobile Villa LLC v. City of Petaluma, No. 3:23-CV-05177-CRB-1, 2024 WL

21 2852140, at *6 (N.D. Cal. June 4, 2024). The City could grant relief under Section

22

23

24

to be exempt from the City of San Diego inclusionary housing requirements.”) and Paragraph 21 (same)—

25 such opinions are appropriate. The Lowe Declaration lays a sufficient foundation establishing Ms. Lowe

as director of the agency charged with administering San Diego’s regulations on land use and property

26 development. She has been the director of the City of San Diego’s Development Services Department

since 2018, and deputy director before that from 2014–18. (Lowe Decl. ¶¶ 1–2.) The testimony contained

27 in these paragraphs are admissible based on Ms. Lowe’s “experience, qualifications, and personal

perceptions on how [the regulations are] administered.” Ward v. Crow Vote LLC, 634 F. Supp. 3d 800,

28

1 142.1311(a) if it finds all of the following: (1) there are special circumstances unique to

2 the development, (2) the development would not be feasible without modification, (3) a

3 “specific and substantial” financial hardship would occur without modification, and (4) no

4 alternative means of compliance are feasible. San Diego Mun. Code. § 142.1311(a). The

5 City could also grant relief under subsection (b) if it finds that applying the IAHR

6 requirements would take property in violation of the United States or California

7 constitutions. Id. § 142.1311(b). Plaintiffs have not shown that seeking relief under either

8 of these avenues would be futile or that the text of the Code requires denial of their request

9 for modification.8 Plaintiffs submit the declaration of Geoff Palmer, which states:

10 I have also reviewed [Municipal Code] § 142.1311 personally and in

consultation with other members of Plaintiffs’ development team and legal

11

counsel and I am familiar with its specification of limited grounds for the City

12 to consider or approve a “variance, waiver, adjustment or reduction from the

[IAHR] requirements, including the specific “findings” that would be required

13

for such an approval. Based on my personal knowledge of the Project, the

14 economic and environmental circumstances and physical conditions

surrounding the Project, and other characteristics of the proposed Project, it

15

would be futile to pursue an application for a waiver under that Section.

16

17 / / /

18

19

20

8 At oral argument, counsel for Plaintiffs suggested it would be futile to seek modification under

21 subsection (b) because under California law that “it is inherently futile to ask a governmental agency to

declare itself or its program to be unconstitutional.” (Prelim. Tr. of Hr’g.) It is true that California law

22 precludes “an administrative agency” from “declar[ing] a statute unenforceable” or “refus[ing] to enforce

a statute on the basis that federal law or federal regulations prohibit the enforcement of such statute unless

23 an appellate court has made a determination.” Cal. Const. Art. III, § 3.5; Kloepfer v. Comm’n on Jud.

Performance, 49 Cal. 3d 826, 833 n.3 (1989) (citing Cal. Const., art. III, § 3.5) (holding petitioner “was

24

not required … to engage in the presumptively futile exercise of objecting to” administrative procedures

25 because the agency “lacks authority to declare those rules invalid”). But here, Plaintiffs would request

the City to find only that a particular application of the IAHR effects an unconstitutional taking. Such a

26 request does not require the City to declare the entire IAHR unenforceable or to refuse to enforce the

IAHR. Subsection (b) explicitly grants City officials authority to make such a determination. See Lockyer

27 v. City & County of San Francisco, 33 Cal. 4th 1055, 1086 (2004) (“[A]dministrative bodies and officers

have … such powers as have expressly or impliedly been conferred upon them by the Constitution or by

28

1 (Palmer Decl. ¶ 9. ) This conclusory assertion represents Mr. Palmer’s opinion on how the

2 City would respond to Plaintiffs’ request for modification; but it is for the City to decide,

3 not Mr. Palmer. As explained, the text of the Code grants City officials discretion to make

4 findings that would allow it to grant a modification and lower courts have held that a

5 decision is not final until local governments exercise such discretion when available. See,

6 e.g.. Mendelson v. San Mateo County, No. 23-15494, 2024 WL 3518319, at *1 (9th Cir.

7 July 24, 2024) (unpublished) (declining to construe county regulations as a categorical bar

8 to the plaintiff’s desired development because “[t]he County has discretion … to waive its

9 … development restrictions to avoid an unconstitutional taking”); Ralston v. County of San

10 Mateo, No. 21-16489, 2022 WL 16570800, at *2 (9th Cir. Nov. 1, 2022) (unpublished),

11 cert. denied, 144 S. Ct. 101 (2023) (“Accepting [plaintiff’s] argument that the County’s …

12 regulations alone serve as the County’s final decision would strip the County of its ability

13 to interpret and apply its own regulations as they relate to [plaintiff’s] property.”) At oral

14 argument, counsel for the City confirmed that the City has no position on how it would

15 respond to a request under subsection (a). (See Prelim. Tr. of Hr’g, “Who knows what

16 would happen.”) Plaintiffs’ allegation that “the City has not granted waivers or relief from

17 the [IAHR requirements] for projects such as Plaintiffs’ Project,” (Compl. ¶ 77), even if

18 true, does not negate the fact that the City may exercise discretion here.

19 The reasoning in Pakdel confirms that Plaintiffs must request modification under

20 Section 142.1311 so long as denial is not certain. In Pakdel, the Supreme Court held that

21

22

23 9 The Court overrules the City’s objections to above-quoted portion of Paragraph 9. There is no hearsay

problem because Mr. Geoff Palmer, the author of the declaration, would “testify competently” to the

24

contents of his declaration at trial “[i]f called as a witness.” (Palmer Decl. ¶ 1.) See Sandoval, 985 F.3d

25 at 666. And there is no improper lay testimony issue because the assertions in Paragraph 9 are the

declarant’s observations and opinions based on his experience overseeing real estate development

26 projects, including the Project at issue here, and such testimony would be admissible at trial. See Gadson,

763 F.3d at 1208. Other objections on grounds that the assertion is speculative, argumentative, conclusory,

27 lacking foundation, etc., “are all duplicative of the summary judgment standard itself,” Burch v. Regents

of Univ. of Cal., 433 F. Supp. 2d 1110, 1119 (E.D. Cal. 2006), and “unnecessary to consider here,” Holt

28

1 the plaintiffs need not have sought an exemption to satisfy the finality requirement after

2 the city had already granted final approval on their application for condominium

3 conversion. 594 U.S. at 480–81. Such a request was truly futile because it was “belated,”

4 and the City “could no longer grant relief” at the time it was made. Id. at 477 (alteration

5 and internal quotes omitted). The Pakdel Court emphasized that “administrative missteps

6 do not defeat ripeness once the government has adopted its final position.” Id. at 480

7 (emphasis added). Here, Plaintiffs have not shown that seeking modification through

8 Municipal Code § 142.1311 now would be untimely or amount to a “misstep.” See also

9 Ballard v. City of West Hollywood, No. CV 23-4367 FMO, 2024 WL 3593999, at *2 (C.D.

10 Cal. Jan. 3, 2024) (“[A] takings claim must be dismissed for lack of finality where the

11 plaintiff could have, but did not, seek a zoning variance.”).

12 This Court’s conclusion is consistent with recent lower court decisions within the

13 Ninth Circuit. In Ralston v. County of San Mateo, the plaintiffs sought to construct a single-

14 family home on their parcel of land located in a “riparian corridor” within which the County

15 restricted residential development. No. 21-CV-01880-EMC, 2021 WL 3810269, at *2

16 (N.D. Cal. Aug. 26, 2021), aff’d, No. 21-16489, 2022 WL 16570800 (9th Cir. Nov. 1,

17 2022). Plaintiffs never applied for a building permit but requested review by the County’s

18 “Community Development Director.” Id. The Development Director stated in response

19 that “no home on the Property would be allowed.” Id. The plaintiffs challenged the

20 decision in federal court as a taking in violation of the United States constitution. Id. at *3.

21 The district court dismissed the action for lack of constitutional ripeness and found that

22 there was no final decision for two reasons. Id. at *5–9. First, the court explained that the

23 plaintiffs had not applied for a building permit and “the Planning Director’s preliminary

24 statements cannot constitute a ‘final decision.’” Id. at *6. Second, the court explained that

25 the Planning Director’s “preliminary statements” did not “foreclose the possibility that the

26 County might conclude otherwise if Plaintiffs submit a proper … application” because

27 even if development “would normally not be permitted, … [county regulations] allow[] for

28 exceptions where a taking occurs.” Id. The court noted that the County has previously

1 granted building permits in such situations “with mitigatory conditions.” Id. Here too, the

2 Project Issues Report and Comment 00157 are no more than “preliminary statements” and

3 Plaintiffs may still seek a modification on how the IAHR applies to their Project.

4 And in Little Woods Mobile Villa LLC v. City of Petaluma, owners of a mobile home

5 park challenged a city ordinance that restricted the ability of mobile home park operators

6 to close their parks as a taking in violation of the United States constitution. 2024 WL

7 2852140, at *1. The court found the claim unripe because the plaintiffs did not “appl[y]

8 for closure … or receive[] any other determination related to their ability to close” from

9 the city. Id. at *7. The court rejected the plaintiffs’ argument that “the outcome of their

10 application would be certain” and result in “either a denial or … the imposition of

11 impossibly high mitigation costs as a condition of closure.” Id. It concluded that city

12 regulations allow for some degree of flexibility, and therefore, that there was at least some

13 “dispute about what rules the City would apply if it were faced with an application from

14 Plaintiffs.” Id. at *7–8. The same is true here.

15 In short, the Court holds that Plaintiffs’ takings claim is not ripe because the City

16 has not reached a final decision. While the line between administrative exhaustion, on the

17 one hand, and “avenues … remain[ing] for the government to clarify or change its

18 decision,” Pakdel, 594 U.S. at 480, on the other, remains unclear, it is clear here that the

19 City here has not yet “committed to a position,” id. at 479, and “avenues still remain for

20 the government to clarify or change its decision” on how the IAHR will apply to Plaintiff’s

21 Project. Id. at 480. The finality requirement “ensures that a plaintiff has actually ‘been

22 injured by the Government’s action’ and is not prematurely suing over a hypothetical

23 harm.” Id. at 479 (quoting Horne v. Dep’t of Agric., 569 U.S. 513, 525 (2013)). Although

24 the takings claim here will likely ripen and make its way back to court eventually, it is

25 important for the Court to first “know[] how far the regulation goes” before it can determine

26 it “has gone too far.” MacDonald, Sommer & Frates v. Yolo County, 477 U.S. 340, 348

27 (1986)). For example, to evaluate Palmer’s unconstitutional conditions claim, the Court

28 will need to determine whether “there is a ‘nexus’ and ‘rough proportionality,’” Koontz v.

1 St. Johns River Water Mgmt. Dist., 570 U.S. 595, 606 (2013) (quoting Dolan v. City of

2 Tigard, 512 U.S. 374, 391 (1994); Nollan v. Cal. Coastal Comm’n, 483 U.S. 825, 837

3 (1987)), between the “monetary exaction[]” (in-lieu fees) the City demands, id. at 612, and

4 the City’s interest in promoting “diverse and balanced neighborhoods with housing

5 available for households of all income levels,” San Diego Mun. Code § 142.1301.10 The

6 Court cannot do this until the assessed fee is certain. The City’s decision on a request for

7 modification could reduce the fee. Without certainty on how the IAHR will apply, reaching

8 the merits would require the Court to issue an advisory opinion. See Anchorage Equal Rts.

9 Comm’n, 220 F.3d at 1138 (“Our role is neither to issue advisory opinions nor to declare

10 rights in hypothetical cases, but to adjudicate live cases or controversies consistent with

11 the powers granted the judiciary in Article III of the Constitution.”). The ripeness doctrine

12 “is designed to avoid” this. Little Woods, 2024 WL 2852140, at *8.

13 For these reasons, the Court finds the City has shown “by a preponderance of the

14 evidence,” Leite, 749 F.3d at 1121, that the as-applied takings claim is unripe and grants

15 the City’s motion to dismiss Count 1. The Court also grants the motion to dismiss Count

16 2 to the extent it raises as-applied equal protection and due process challenges which are

17 subject to the same ripeness requirement. See Del Monte Dunes at Monterey, Ltd. v. City

18 of Monterey, 920 F.2d 1496, 1507 (9th Cir. 1990) (“In evaluating the ripeness of due

19 process or equal protection claims arising out of the application of land use regulations, we

20 employ the same final decision requirement that applies to … taking claims.”).

21 3. Exhaustion of State Law Claims

22 Unlike federal claims not subject to an exhaustion requirement, “the rule of

23 exhaustion of administrative remedies is well established in California jurisprudence” and

24 applies to Plaintiffs’ state law claims. Campbell v. Regents of Univ. of Cal., 35 Cal. 4th

25

26

27 10 Earlier this year, the Supreme Court held that the Nolan/Dollan nexus and rough proportionality test

applies to legislative and administrative conditions alike. Sheetz v. County of El Dorado, 601 U.S. 267,

28

1 311, 321 (2005). The administrative exhaustion rule requires that “where an administrative

2 remedy is provided by statute, relief must be sought from the administrative body and this

3 remedy exhausted before the courts will act.” Id. (quoting Abelleira v. District Court of

4 Appeal, 17 Cal. 2d 280, 292 (1941)). It “is ‘a jurisdictional prerequisite to resort to the

5 courts.’” Johnson v. City of Loma Linda, 24 Cal. 4th 61, 70 (2000) (quoting Abelleira, 17

6 Cal. 2d at 293). However, there are exceptions to the rule, including “(1) when the

7 administrative agency cannot provide an adequate remedy, and (2) when the subject of

8 controversy lies outside the agency’s jurisdiction.” Campbell, 35 Cal. 4th at 322 (citing

9 Edgren v. Regents of Univ. of Cal., 158 Cal. App. 3d 515, 520–21 (1984)). When an

10 agency’s “authority to act in a particular area derives wholly from statute, the scope of that

11 authority is measured by the terms of the governing statute.” Lockyer, 33 Cal. 4th at 1086.

12 Plaintiffs have not satisfied the exhaustion rule for their as-applied state

13 constitutional claims (Counts 3–4). This analysis overlaps with the ripeness analysis

14 above. As explained, Plaintiffs have not pursued modification under Municipal Code

15 Sections 142.1310–11 which may allow the City to modify application of the IAHR to the

16 Project. See Hensler v. City of Glendale, 8 Cal. 4th 1, 13–14 (1994) (property owner may

17 bring as-applied challenge to development restrictions only after “afford[ing] the [agency]

18 the opportunity to … exempt the property from the allegedly invalid … restriction”)

19 (internal quotes omitted). However, Plaintiffs have satisfied the administrative exhaustion

20 requirement for their facial equal protection and due process challenges under the

21 California constitution in Count 4 and other state law challenges in Count 5 because the

22 City lacks authority to declare the IAHR unenforceable, as explained above. See supra

23 footnote 8; Cal. Const. Art. III, § 3.5; Kloepfer, 49 Cal. 3d at 833 n.3 (1989).

24 Accordingly, the Court grants the City’s motion to dismiss Plaintiffs’ as-applied

25 state law constitutional challenges in Counts 3 and 4 for lack of jurisdiction because

26 Plaintiffs have failed to exhaust administrative remedies. The Court denies the motion as

27 to the other state law claims because administrative remedies would be futile.

28 / / /

1 4. Article III Standing

2 Finally, the Court addresses the City’s argument that Plaintiffs lack standing to

3 challenge the entire IAHR. The City does not dispute that Plaintiffs have Article III

4 standing to bring the claims raised in the Complaint if they are constitutionally ripe.

5 Accordingly, this argument may be appropriate at the remedies phase concerning the scope

6 of any equitable relief but the Court need not address it now. See Renna v. Bonta, 667 F.

7 Supp. 3d 1048, 1069 (S.D. Cal. 2023), appeal docketed, No. 23-55367 (9th Cir. Apr. 20,

8 2023) (quoting Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684 (1987)) (“If a challenged

9 statute contains ‘unobjectionable provisions separable from those found to be

10 unconstitutional,’ the court must sever such provisions.”).

11 C. Merits

12 Because the Court has dismissed on jurisdictional grounds Counts 1 and 3 (takings

13 claims), and Counts 2 and 4 (equal protection and due process claims) to the extent that

14 they raise as-applied challenges, the only claims left are Counts 2 and 4 to the extent they

15 raise facial challenges, and Count 5. For the following reasons, the Court grants the City’s

16 Rule 12(b)(6) motion to dismiss the remaining claims on the merits.

17 1. Counts 2 and 4: Facial Due Process and Equal Protection Challenges

18 Plaintiffs allege that the IAHR facially violates their liberty interests protected by

19 the Due Process Clause of the Fourteenth Amendment (substantive due process) as well as

20 the Equal Protection Clause of the Fourteenth Amendment. See U.S. Const. amend. XIV.

21 Plaintiffs also raise claims based on violations of analogous provisions of the California

22 Constitution. See Cal. Const. art. I, § 7. Because federal and California substantive due

23 process and equal protection claims are analyzed the same, see S.F. Taxi Coal. v. City and

24 County of San Francisco, 979 F.3d 1220, 1224 n.4 (9th Cir. 2020) (“California law is

25 functionally identical to federal law in this area.”), these claims are analyzed together.

26 a. Substantive Due Process

27 The IAHR does not facially violate the Due Process Clause of the Fourteenth

28 Amendment. “Substantive due process ‘forbids the government from depriving a person

1 of life, liberty, or property in such a way that ‘shocks the conscience’ or ‘interferes with

2 the rights implicit in the concept of ordered liberty.’” Corales v. Bennett, 567 F.3d 554,

3 568 (9th Cir. 2009) (quoting Nunez v. City of Los Angeles, 147 F.3d 867, 871 (9th Cir.

4 1998)). “Laws that do not infringe a fundamental right survive substantive-due-process

5 scrutiny so long as they are ‘rationally related to legitimate government interests.’”

6 Stormans, Inc. v. Wiesman, 794 F.3d 1064, 1085 (9th Cir. 2015) (quoting Washington v.

7 Glucksberg, 521 U.S. 702, 728 (1997)).

8 Plaintiffs allege they have “constitutionally-protected rights in their property,

9 including rights to exclude uninvited third persons, as well as rights in their applications

10 for approvals to use and develop their property consistently with the applicable and lawful

11 provisions of the City’s planning and zoning.” (Compl. ¶ 114.) These alleged rights “are

12 economic in nature.” Slidewaters LLC v. Wash. State Dep’t of Lab. & Indus., 4 F.4th 747,

13 758 (9th Cir. 2021) (characterizing alleged “right to use property as one wishes” as

14 “economic in nature”). “The proper test for judging the constitutionality of statutes

15 regulating economic activity … is whether the legislation bears a rational relationship to a

16 legitimate state interest.” Jackson Water Works, Inc. v. Pub. Util. Comm’n of Cal., 793

17 F.2d 1090, 1093–94 (9th Cir. 1986). Under this deferential standard, Plaintiffs must show

18 that the IAHR is “clearly arbitrary and unreasonable, having no substantial relation to the

19 public health, safety, morals or general welfare.” Samson v. City of Bainbridge Island, 683

20 F.3d 1051, 1058 (9th Cir. 2012).

21 Plaintiffs do not dispute that this claim is subject to rational basis review and “do[]

22 not question” that the ordinance’s stated purpose of “encouraging more affordable housing

23 is a legitimate public goal.” (Opp’n at 32; see also Compl. ¶ 6.) The IAHR enables the

24 City to ensure there are housing units available for lower income persons in all large new

25 developments, or alternatively, to raise revenue it can spend on acquiring such housing

26 units. This rationally advances the IAHR’s purpose of “encourag[ing] diverse and

27 balanced neighborhoods.” San Diego Mun. Code § 142.1301. “Where there are ‘plausible

28 reasons’” for enacting the legislation, a court’s “‘inquiry is at an end.’” F.C.C. v. Beach

1 Commc’ns, Inc., 508 U.S. 307, 313–14 (1993) (quoting U.S. R.R. Retirement Bd. v. Fritz,

2 449 U.S. 166, 179 (1980)). Accordingly, the IAHR is “presumed valid” and Plaintiffs have

3 not “overcome” this presumption “by a clear showing of arbitrariness and irrationality.”

4 Kawaoka v. City of Arroyo Grande, 17 F.3d 1227, 1234 (9th Cir. 1994).

5 b. Equal Protection

6 The IAHR also does not facially violate the Equal Protection Clause. “In areas of

7 social and economic policy, a statutory classification that neither proceeds along suspect

8 lines nor infringes fundamental constitutional rights must be upheld against equal

9 protection challenge if there is any reasonably conceivable state of facts that could provide

10 a rational basis for the classification.” Beach Commc’ns, 508 U.S. at 313. Plaintiffs allege

11 the IAHR singles out “developers of new multi-family housing”:

12 [T]he City is intentionally treating one class of property owners – developers

of new multi-family housing, including Plaintiffs – differently from other

13

similarly-situated property owners or City residents, and requiring them to

14 relinquish or contribute more than others in order to address the City’s existing

housing deficiencies and ostensible future affordable housing needs and

15

programs, and to provide newly-constructed residential rental dwelling units

16 which purportedly benefit the community as a whole, without providing any

rational basis for the difference in treatment.

17

18 (Compl. ¶ 118.) Plaintiffs do not dispute that the rational basis test applies because

19 “developers of new multi-family housing” are not a suspect class. On rational basis review,

20 a legislative classification “bear[s] a strong presumption of validity,” and “those attacking

21 the rationality of the legislative classification have the burden ‘to negative every

22 conceivable basis which might support it.’” Beach Commc’ns, 508 U.S. at 315 (quoting

23 Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 364 (1973)). It is conceivable

24 here that the City Council prospectively subjected only new developments of a certain size

25 to the IAHR requirements to avoid excessive economic disruption that would result from

26 applying the IAHR to existing and small-scale developments. That is sufficient. Id. at

27 313–14 (where there are “plausible reasons,” the court’s inquiry ends).

28 Plaintiffs also do not state a “class-of-one” claim. “[A]n equal protection claim can

1 in some circumstances be sustained even if the plaintiff has not alleged class-based

2 discrimination, but instead claims that she has been irrationally singled out as a so-called

3 ‘class of one.’” Engquist v. Or. Dep’t of Agric., 553 U.S. 591, 601 (2008). To plead a

4 class-of-one equal protection claim, Plaintiffs “must allege facts showing that they have

5 been ‘[1] intentionally [2] treated differently from others similarly situated and that [3]

6 there is no rational basis for the difference in treatment.’” SmileDirectClub, LLC v.

7 Tippins, 31 F.4th 1110, 1122–23 (9th Cir. 2022) (quoting Village of Willowbrook v. Olech,

8 528 U.S. 562, 564, (2000) (per curiam)) (alterations in original). However, Plaintiffs

9 acknowledge that the IAHR applies to all “developers of new multi-family housing” and

10 do not allege they are the only such developers in the City of San Diego. Nor have

11 Plaintiffs alleged facts showing the IAHR facially singles them out. A plain reading of the

12 IAHR confirms no such assertion is possible.

13 The IAHR advances a legitimate government interest and “bears a rational

14 relationship” to that interest as a matter of law. Slidewaters, 4 F.4th at 758 (quoting

15 Jackson Water Works, 793 F.2d at 1093–94). The IAHR also makes valid classifications

16 and does not single out Plaintiffs as a “class of one.” Accordingly, the Court finds that

17 leave to amend would be futile. Plaintiffs will not be able to allege any additional facts to

18 overcome the strong presumption of validity on a facial challenge. Plaintiffs’ facial equal

19 protection and substantive due process claims are dismissed with prejudice. Ascon Props.,

20 Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (leave need not be granted if

21 amendment would be futile). Plaintiffs may still raise as-applied challenges when ripe.

22 2. Count 5: Additional State Law Claims

23 Plaintiffs’ remaining state law arguments within Count 5 either fail to state a claim

24 or are duplicitous of Plaintiffs’ other claims. First, Plaintiffs argue the City has failed to

25 comply with the requirements of Article XIII C, Section 1(e) of the California Constitution

26 because the IAHR was not approved by voters and the City has not “sustained [its] burden

27 of proving by a preponderance of evidence that the new exactions or charges they demand

28 under the guise of the [IAHR] are not in fact ‘taxes’ requiring voter approval.” (Compl. ¶

1 138(A).) Article XIII C “restricts the authority of local governments to impose taxes by,

2 among other things, requiring voter approval of all taxes imposed by local governments,”

3 City of San Buenaventura v. United Water Conservation Dist., 3 Cal. 5th 1191, 1200

4 (2017), but it excludes from the definition of tax: “charge[s] imposed as a condition of

5 property development” and “[a]ssessments and property-related fees imposed in

6 accordance with the provisions of Article XIII D,” Cal. Const. art. XIII C, § 1(e)(6)–(7).

7 Plaintiffs do not dispute that the IAHR in-lieu fees are “charge[s] imposed as a condition

8 of property development.” Id. § 1(e)(6). Accordingly, this claim fails, and the Court grants

9 the motion to dismiss the claim with prejudice because amendment would be futile. See

10 Ascon Props., Inc., 866 F.2d at 1160.

11 Second, Plaintiffs argue that the City “failed to prove any reasonable nexus and

12 rough proportionality between its exactions and impacts caused by development of new

13 rental units and justify [the IAHR] fees and exactions as required by the Constitutions of

14 the United States and the State of California.” (Compl. ¶ 138(B).) Plaintiffs provide no

15 legal basis for this claim and it is unclear how it differs from the Nolan/Dollan exactions

16 theory raised within their takings claims. Accordingly, Plaintiffs fail to allege “sufficient

17 factual matter, accepted as true, to ‘state a claim to relief.’” Iqbal, 556 U.S. at 678 (quoting

18 Twombly, 550 U.S. at 570). The Court grants the motion to dismiss this claim. Plaintiffs

19 may raise this theory within their takings claims.

20 Third, Plaintiffs argue that the IAHR fails to comply with the requirements of the

21 California Mitigation Fee Act, Cal. Gov’t Code §§ 66000–06. (Compl. ¶ 138(C).) The

22 Act requires that “legislatively imposed development mitigation fees” “bear a reasonable

23 relationship, in both intended use and amount, to the deleterious public impact of the

24 development.” San Remo Hotel L.P. v. City and County of San Francisco, 27 Cal. 4th 643,

25 671 (2002) (citing Cal. Gov’t Code § 66001). The Act defines such a “fee” as:

26 a monetary exaction other than a tax or special assessment, … that is charged

by a local agency to the applicant in connection with approval of a

27

development project for the purpose of defraying all or a portion of the cost

28 of public facilities related to the development project.

1 Cal. Gov’t Code § 66000(b). The California Supreme Court has in turn defined “exactions”

2 as “conditions on development a local agency imposes that divest the developer of money

3 or a possessory interest in property,” but not restrictions on the ways “a developer may use

4 its property.” Sterling Park, L.P. v. City of Palo Alto, 57 Cal. 4th 1193, 1207 (2013). As

5 currently pled, this claim is derivative of Plaintiffs’ takings claims because it relies on the

6 premise that the IAHR in-lieu fees are unlawful exactions. Because the takings claims are

7 dismissed, the Court cannot determine whether Plaintiffs have adequately alleged that the

8 IAHR’s in-lieu fees are unlawful exactions. Accordingly, the Court grants the motion to

9 dismiss this theory with leave to amend.11

10 Finally, Plaintiffs argue the IAHR’s “exactions and fees improperly fail to

11 distinguish between existing needs for affordable housing and new or increased public

12 ‘needs’ supposedly caused by new market rate housing development, and improperly

13 include admittedly-existing deficiencies in the community’s stock of affordable housing.”

14 (Compl. ¶ 138(D).) Plaintiffs plead no legal basis for this theory. Accordingly, Plaintiffs

15 fail to allege “sufficient factual matter, accepted as true, to ‘state a claim to relief,’” Iqbal,

16 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570), and the Court grants the motion to

17 dismiss this claim. In their Opposition, Plaintiffs point to California Government Code §

18 66001(g), part of the Mitigation Fee Act, which states that a development mitigation fee:

19 shall not include the costs attributable to existing deficiencies in public

facilities, but may include the costs attributable to the increased demand for

20

public facilities reasonably related to the development project in order to (1)

21 refurbish existing facilities to maintain the existing level of service or (2)

achieve an adopted level of service that is consistent with the general plan.

22

23 Cal. Gov’t Code § 66001(g). Plaintiffs may incorporate an argument based on this

24 provision as part of a Mitigation Fee Act claim in an amended complaint.

25

26

11 The Court also observes that before Plaintiffs can raise a Mitigation Fee Act claim, they must first

27 “[t]ender[] any required payment in full or provid[e] satisfactory evidence of arrangements to pay the fee

when due or ensure performance of the conditions necessary to meet the requirements of the imposition.”

28

I IV. CONCLUSION AND ORDER

2 Accordingly, the Courts GRANTS IN PART the City’s Rule 12(b)(1) motion to

3 dismiss for lack of subject matter jurisdiction and GRANTS IN PART the City’s Rule

4 || 12(b)(6) motion for failure to state a claim.

5 IT IS HEREBY ORDERED:

6 (1) Counts 1 and 3: Plaintiffs’ takings claims are dismissed without prejudice for

7 lack of subject matter jurisdiction.

8 (2) Counts 2 and 4: Plaintiffs’ equal protection and due process claims are

9 dismissed without prejudice for lack of subject matter jurisdiction to the extent

10 they raise as-applied challenges; and dismissed with prejudice to the extent

11 they raise facial challenges.

12 (3) Count 5: Plaintiffs’ claim for equitable relief based on other state law violations

13 is dismissed without prejudice to the extent it relies on a California Mitigation

14 Fee Act violation; and dismissed with prejudice as to all other theories.

15 If Plaintiffs believe they have good cause to allege additional facts that would cure

16 deficiencies identified in this Order pertaining to claims dismissed without prejudice

17 || (e.g., if there have been developments in the building permit application process such that

18 || Plaintiffs now believe the City has reached a final decision), they may file an amended

19 || complaint within twenty-one (21) days of the date of this Order. If Plaintiffs elect not to

20 || file an amended complaint, the Clerk will enter judgment of dismissal and close this case.

21 IT IS SO ORDERED.

22 || Dated: August 22, 2024 nm Lab

3 Hon. Dana M. Sabraw, Chief Judge

United States District Court

24

25

26

27

28

I8