Pawn 1st LLC v. City of Phoenix/jachimek

IN THE

SUPREME COURT OF THE STATE OF ARIZONA

PAWN 1ST, LLC, AN ARIZONA LIMITED LIABILITY COMPANY,

Plaintiff/Appellant,

v.

CITY OF PHOENIX, A POLITICAL SUBDIVISION OF THE STATE OF ARIZONA;

BOARD OF ADJUSTMENT OF THE CITY OF PHOENIX; AND BOB FORD; EMILIO

GAYNOR; PATRICK PAUL; ALEX TAUBER; YVONNE HUNTER; BETTINA NAVA;

AND EMILY RYAN, AS MEMBERS OF AND CONSTITUTING THE BOARD OF

ADJUSTMENT OF THE CITY OF PHOENIX,

Defendants/Appellees,

WILLIAM JACHIMEK DBA CENTRAL PAWN,

Real Party in Interest/Appellee.

No. CV-16-0107-PR

Filed August 10, 2017

Appeal from the Superior Court in Maricopa County

The Honorable Lisa Daniel Flores, Judge

No. LC2010-000701

AFFIRMED

Opinion of the Court of Appeals, Division One

239 Ariz. 539 (App. 2016)

VACATED

COUNSEL:

Thomas M. Baker, Baker & Baker, Phoenix, Attorney for Pawn 1st, LLC

Brad Holm, Phoenix City Attorney, Les S. Tuskai (argued), Paul Li,

Assistant City Attorneys, Phoenix, Attorneys for City of Phoenix, Board of

Adjustment of the City of Phoenix, Bob Ford, Emilio Gaynor, Patrick Paul,

Alex Tauber, Yvonne Hunter, Bettina Nava and Emily Ryan

PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

Claudio E. Iannitelli, John C. Marcolini (argued), Cheifetz Iannitelli

Marcolini, P.C., Phoenix, Attorneys for William Jachimek dba Central Pawn

Nicholas J. Wood, Adam E. Lang, Brianna L. Long, Snell & Wilmer, L.L.P.,

Phoenix, Attorneys for Amicus Curiae American Planning Association,

Arizona Chapter

JUSTICE LOPEZ authored the opinion of the Court, in which CHIEF

JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, and JUSTICES

BRUTINEL, TIMMER, BOLICK, and GOULD joined.

JUSTICE LOPEZ, opinion of the Court:

¶1 This case concerns the standards a municipal zoning board

applies in considering an application for a zoning variance. We hold that

to obtain an area variance, an applicant must show that strictly applying a

zoning ordinance will cause “peculiar and exceptional practical

difficulties” that deprive a property of privileges enjoyed by other similarly

zoned properties. We also clarify that the applicant’s desire to use the

property for purposes allowed on other similarly zoned properties does not

in itself constitute a self-imposed special circumstance justifying denial of

an area variance.

BACKGROUND

¶2 The dispute here concerns the City of Phoenix Board of

Adjustment’s (the “Board”) grant of a variance on a parcel of land (the

“Property”) at the southwest corner of McDowell Road and 32nd Street in

Phoenix. The area in which the Property sits is zoned as a “Commercial C-3

District—General Commercial.” Such districts have 141 specific permitted

uses plus all uses permitted in properties zoned C-1 and C-2, and several

residential uses. C-3 districts are designed to provide areas for “intensive

commercial uses.” Phx., Ariz., Zoning Ordinance § 624(A) (hereinafter

“Ordinance”).

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

¶3 The Property boasts a conspicuous history. For many

decades, it was home to an “adult theatre” operated under various names.

In 1973, the City of Phoenix completed an eminent domain action that

altered the Property’s dimensions and resulted in several unique

characteristics, all of which limited its commercial viability. First, the action

reduced the Property to only 12,000 square feet, smaller than any of the

twelve surrounding C-3-zoned corner parcels. Second, it eliminated the

frontage area around the building on the Property, resulting in its direct

abutment of a public sidewalk. Third, it restricted parking spaces.

¶4 In January 2010, the Property’s owners evicted their tenants,

discontinued the Property’s use as an adult theatre (a non-conforming use),

and leased the Property to William Jachimek, doing business as Central

Pawn, with an option to purchase. When Jachimek entered the lease, he

intended to operate a pawn shop. A pawn shop is a permitted use in a

C-2-zoned parcel, provided the building’s exterior walls are at least 500 feet

from a residential district and the owner obtains a use permit from the

zoning administrator. Jachimek applied for both a use permit for his pawn

business and, because the Property is within 500 feet of a residential district,

a variance from the 500-foot residential setback requirement.

¶5 After the zoning administration hearing officer denied his

applications, Jachimek appealed to the Board. At the Board hearing, Pawn

1st, LLC (“Pawn”), a competing pawn shop, opposed the variance. The

Board conditionally approved the variance, requiring Jachimek to operate

the pawn shop only during specified hours, to not buy or sell guns or

pornography, and to apply for building permits for a promised remodel of

the building within one year. The Board’s minutes from its July 1, 2010

meeting memorialize its findings:

[S]pecial circumstances . . . appl[y] to the land, namely the

unique nature of the discontinuance of the non-conforming

use on the property [the adult theatre use], the fact that it was

substantially impacted by prior [eminent] domain activities in

a manner that was dissimilar to other properties in a

reasonably close radius, including setbacks, and the fact that

there [is] less than 12,000 total square feet available and there

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

[are] restrictive parking requirements, that these special

circumstances were not created by the owner or applicant,

and were rather created in part by growth in the city itself,

that it was necessary for the preservation and enjoyment of

substantial property rights given the restrictions and the

property and current dormancy of any other business on the

site, this particular place on the site, that authorizing it would

not be materially detrimental to persons residing or working

in the vicinity, to adjacent property, the neighborhood or

public welfare in general.

¶6 After the Board rejected a reconsideration motion, Pawn filed

a special action in superior court challenging the Board’s variance decision.

The superior court ruled in Jachimek’s favor, finding that Pawn lacked

standing to challenge the Board’s decision. The court of appeals reversed,

finding that Pawn had standing. Pawn 1st, LLC v. City of Phoenix, 231 Ariz.

309 (App. 2013) (Pawn I). On remand, the superior court ruled in Jachimek’s

favor and dismissed Pawn’s complaint, finding that the variance was an

area variance and not a use variance; that the Board’s decision to grant

Jachimek’s area variance was not ultra vires because the Board is

authorized to consider area variances; and that sufficient evidence

supported the Board’s variance decision.

¶7 The court of appeals again reversed. Pawn 1st, LLC v. City of

Phoenix, 239 Ariz. 539, 545 ¶ 28 (App. 2016) (Pawn II). It agreed with the

superior court that Jachimek sought an area variance because a pawn shop

is an allowed use within a C-3 zoning district, irrespective of the 500-foot

distance requirement. Id. at 542 ¶ 11. But it disagreed that the Board acted

within its authority and therefore remanded for entry of a judgment

declaring the area variance invalid. Id. at 545 ¶ 28.

¶8 We granted review because the standards a municipal zoning

boards of adjustment must apply when considering an application for a

zoning variance present recurring issues of statewide importance. We have

jurisdiction pursuant to article 6, section 5(3), of the Arizona Constitution

and A.R.S. § 12-120.24.

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

DISCUSSION

¶9 We review issues of statutory interpretation de novo, Baker v.

Univ. Physicians Healthcare, 231 Ariz. 379, 387 ¶ 30 (2013), and we presume

the validity of the Board’s determination unless it is “against the weight of

the evidence, unreasonable, erroneous, or illegal as a matter of law.”

Mueller v. City of Phoenix ex rel. Phoenix Bd. of Adjustment II, 102 Ariz. 575,

581 (1967); see also A.R.S. § 12-910(E) (“The court shall affirm the agency

action unless . . . the court concludes that the action is not supported by

substantial evidence, is contrary to law, is arbitrary and capricious or is an

abuse of discretion.”).

I. Zoning Boards of Adjustment

¶10 Arizona law authorizes cities and towns to establish boards

of adjustment by ordinance. A.R.S. § 9-462.06(A). The boards decide

appeals from zoning administrators’ decisions concerning zoning

ordinance enforcement. A.R.S. § 9-462.06(G)(1). Primarily, the boards

determine whether “special circumstances” exist to relieve owners of

property with unique characteristics from strict application of zoning laws.

See A.R.S. § 9-462.06(G)(2).

¶11 The boards’ authority to modify zoning decisions is

statutorily limited. Boards of adjustment may not: (1) change the uses

permitted in a zoning district; or (2) “[g]rant a variance if the special

circumstances applicable to the property are self-imposed by the property

owner.” A.R.S. § 9-462.06(H); cf. Arkules v. Bd. of Adjustment of Paradise

Valley, 151 Ariz. 438, 440 (App. 1986) (holding that a board has “no powers

except those granted by the statutes creating it,” and “its power is restricted

to that granted by the zoning ordinance in accordance with the statute”).

Consequently, a board’s grant of a variance in excess of its statutory

authority is ultra vires and invalid as a matter of law. Arkules, 151 Ariz. at

440.

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

II. The Phoenix Zoning Ordinance

¶12 Consistent with § 9-462.06, the Phoenix Zoning Ordinance

authorizes a zoning administrator to issue a variance when “a literal

enforcement of any provisions of the [O]rdinance would result in

unnecessary property hardship.” Ordinance § 307(A)(9). A variance,

however, is authorized only if the applicant can establish that (a) special

circumstances apply to the land, building, or use referenced in the

application which do not apply to other district properties; (b) the owner

did not create the special circumstances; (c) the variance is necessary for the

“preservation and enjoyment of substantial property rights”; and (d) the

variance will not be materially detrimental to the area. Ordinance

§ 307(9)(a)–(d).

¶13 If a zoning administrator denies a variance, an applicant may

appeal to the Board, but the Board’s authority to modify a zoning decision

is limited in that it may not (a) change the uses permitted in a zoning

classification or district; or (b) grant a variance if the property owner self-

imposes the special circumstances applicable to the property. Ordinance

§ 303(B)(2).

III. Area and Use Variances

¶14 Arizona law distinguishes area variances from use variances.

See Ivancovich v. City of Tucson Bd. of Adjustment, 22 Ariz. App. 530, 536

(1974) (noting that “the distinction between ‘area’ and ‘use’ variances, and

the imposition of separate requirements for the granting of each type, are

inventions of the court”). An area variance relieves the duty to comply with

a zoning ordinance’s technical requirements, such as “setback line, frontage

requirements, height limitations, lot size restrictions, density regulations

and yard requirements,” while a use variance permits a use not expressly

allowed by a zoning ordinance. Id. The Arizona Legislature prohibits

boards of adjustment from changing the “uses permitted,” thus confining

their authority only to area variances. See Cardon Oil Co. v. City of Phoenix,

122 Ariz. 102, 103 n.1 (1979) (“[Section] 9-462.06(H)(1) now specifically

prohibits a board of adjustment from changing any of the uses permitted in

a zoning classification.”).

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

¶15 In Ivancovich, the court of appeals explained the different

variance standards: an area variance requires a showing of “peculiar and

exceptional practical difficulties,” while a use variance requires a showing

of “exceptional and undue hardship.” 22 Ariz. App. at 538 (noting that

“[t]he difference between exceptional and undue hardship and peculiar

and exceptional practical difficulties is one of degree”). One reason for

requiring a “less stringent” showing of encumbrance for an area variance

than a use variance is because it does not affect the character of the

community. Id. at 536.

¶16 A use variance, however, requires a more stringent showing

that compliance with the zoning regulations precludes any reasonable use

of the property. Id. at 538 (stating that “[i]t must be shown that the zoning

ordinances preclude the use of the property in question for any purpose to

which it is reasonably adapted”). A legislative body, rather than a zoning

board, may authorize a use variance. A.R.S. § 9-462.01(A)(1) (“[T]he

legislative body of any municipality by ordinance may . . . [r]egulate the use

of buildings, structures and land as between agriculture, residence,

industry, business and other purposes.”); A.R.S. § 9-462.06(H)(1) (A board

of adjustment may not “[m]ake any changes in the uses permitted in any

zoning classification or zoning district, or make any changes in the terms of

the zoning ordinance . . . .”); Ivancovich, 22 Ariz. App. at 535 (“The Board

cannot amend or repeal any zoning ordinance for this power belongs to the

City Council.”). “An inability to put the property to a more profitable use

or loss of economic advantage is not sufficient to constitute undue

hardship” justifying a use variance. Ivancovich, 22 Ariz. App. at 538. This

“no reasonable use” standard is limited to use variances. Id. (holding that

“[s]uch a showing need not be made in the case of area variances”).

¶17 The reasons for this distinction are sound. Two examples

illustrate the point. Permitting an adult bookstore (a C-3 use) in a

residential district would require a use variance—with its attendant higher

“exceptional and undue hardship” standard—and the city legislative

body’s approval through rezoning because it may fundamentally alter the

neighborhood. On the other hand, a decision regarding the number of

parking spaces for a use permitted in a particular district, such as a

restaurant, would require an area variance because it would not produce

the type of neighborhood-altering impact that requires legislative approval.

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

¶18 The area variance provisions protect property owners where

strict application of the Ordinance would “deprive the property of

privileges enjoyed by other property of the same classification in the same

zoning district,” A.R.S. § 9-462.06(G)(2), and “result in unnecessary

property hardship.” Ordinance § 307(A)(9). They serve as a “safety valve

against excessive regulation.” James A. Kushner, 2 Subdivision Law and

Growth Mgmt. § 8:13 (2d ed. 2017).

IV. Jachimek’s Variance

¶19 Here, we consider first whether Jachimek applied for an area

or use variance, and second whether the Board acted within its discretion

in granting the variance. The court of appeals held that Jachimek’s variance

was an area variance because a pawn shop is a permitted use in a C-3

zoning district, irrespective of the 500-foot distance requirement. Pawn II,

239 Ariz. at 542 ¶ 12. We agree.

¶20 The distinction between area and use variances centers on the

nature of the variance. A pawn shop is a permitted use in the zoning

classification here: the Property is zoned as a C-3 commercial district; all

C-2 commercial district uses are allowed in a C-3 district; and a pawn shop

is a permitted use in a C-2 district, provided the exterior walls of the

building are at least 500 feet from a residential district. Ordinance

§ 623(D)(132)(b). Contrary to Pawn’s argument, the 500-foot requirement

is akin to a setback or frontage requirement, not a use regulation; it is a

technical requirement of an established commercial area. A variance

allowing a pawn shop in an existing commercial district does not

fundamentally alter the nature of the area. The Board granted Jachimek an

area variance, not a use variance, and it did not exceed its authority under

A.R.S. § 9-462.06(H)(1).

V. Special Circumstances

¶21 Boards of adjustment may grant area variances only if, due to

special circumstances, “the strict application of the zoning ordinance will

deprive the property of privileges enjoyed by other property of the same

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

classification in the same zoning district.” A.R.S. § 9-462.06(G)(2). “The

term ‘special circumstances’ as used in the zoning ordinance is the

functional equivalent of the word ‘hardship.’” Burns v. SPA Auto., Ltd., 156

Ariz. 503, 505 (App. 1988).

¶22 We agree with the Board, superior court, and court of appeals

that special circumstances apply to the Property. The Board reasoned, after

comparing the Property to twelve surrounding C-3-zoned corner parcels,

that prior eminent domain activities rendered the Property “dissimilar to

other properties in a reasonably close radius.” The Board explained that

the special circumstances arose from the Property’s physical characteristics.

The record supports the Board’s findings that the lot size, the building’s

limited setback from the public sidewalk, and the parking restrictions

constitute special circumstances justifying an area variance, because the

Property’s unique characteristics create exceptional practical difficulties.

Accordingly, the Board acted within its discretion in finding sufficient

special circumstances unique to the Property to justify Jachimek’s variance.

VI. Prohibition against Self-Imposition

¶23 A finding of special circumstances does not justify a variance,

however, if the circumstances are self-imposed by the property owner.

A.R.S. § 9-462.06(H)(2); Ordinance §§ 303(B)(2)(b), 307(A)(9)(a)–(b), -(10)(b).

A board of adjustment exceeds its statutory jurisdiction and authority, and

its decision is “ultra vires and void,” if it grants a variance in violation of

the prohibition against self-imposition. See Arkules, 151 Ariz. at 440.

¶24 In this case, although it acknowledged that special

circumstances impacted the Property, the court of appeals held that any

special circumstances “were created by Jachimek and/or the Property

owner by selecting this particular property to use as a pawn shop, in

violation of the prohibition against self-imposition,” and, consequently,

“the Board’s decision to grant Jachimek a variance was ‘ultra vires and

void.’” Pawn II, 239 Ariz. at 545 ¶ 27. We disagree.

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

¶25 The court of appeals relied on three Arizona cases in

concluding Jachimek created the Property’s special circumstances: Arkules,

Burns, and Rivera v. City of Phoenix, 186 Ariz. 600 (App. 1996). These cases

are factually distinguishable.

¶26 In Arkules, neighbors challenged a variance allowing a

homeowner to paint his house a color inconsistent with a zoning regulation

requiring it to “blend [in] with the mountain background.” 151 Ariz. at 439.

The court of appeals ruled in the neighbors’ favor because, under zoning

law, “[t]he color of a house is not a factor pertaining to the real property or

which would deprive the property of uses or privileges enjoyed by other

property of the same zoning classification.” Id. at 441. The owner’s house

color preference did not constitute a cognizable hardship because the

statutory provisions and zoning ordinance “specifically state that any

hardship must relate to the use of the land as opposed to the owner” and,

therefore, “[a] personal hardship does not justify a variance.” Id. at 442.

¶27 Similarly, in Burns, a car dealership owner created his own

zoning hardship by contracting with three car manufacturers that required

him to display the manufacturers’ logos on a larger sign than the city’s

zoning rules allowed. 156 Ariz. at 504. The superior court reversed the

board of adjustment’s decision allowing a variance to display a non-

compliant sign. Id. The court of appeals upheld the superior court,

reasoning that the special circumstances “were self-inflicted by [the

owner’s] decision to be a three-car dealership,” and that special

circumstances may be considered only if they arise out of “circumstances

or conditions beyond the control of the party involved.” Id. at 505. Unlike

Jachimek’s decision to operate a pawn shop, a use denied to him but

permitted to other similarly situated property owners in the same zoning

district, the owner in Burns sought relief from signage restrictions applied

uniformly to comparable properties.

¶28 In Rivera, a homeowner obtained a building permit to expand

his residence. 186 Ariz. at 602. Following inspection of the completed

work, the city discovered that the improvements exceeded a zoning

limitation on the square footage of residential improvements. Id. The

Board ordered the homeowner to demolish the non-compliant portion of

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

his residence and he sought a variance. Id. The court of appeals affirmed

the Board’s denial of the variance, reasoning that the homeowner created

the special circumstances because he provided the city with an erroneous

site plan. Id. at 603.

¶29 Arkules, Burns, and Rivera are distinguishable because in each

case the owner created the special circumstances; they did not arise from

applying the zoning ordinance to circumstances or conditions beyond the

owners’ control. In contrast, here the special circumstances arose from

factors beyond Jachimek’s control. The City’s eminent domain action, not

Jachimek’s intended use, altered the Property’s dimensions and created the

special circumstances, including the Property’s comparatively small lot

size, absence of frontage area around the building, direct abutment of a

public sidewalk, and onerous parking restrictions. These characteristics

and the strict application of the zoning regulations uniquely diminish the

Property’s commercial viability as compared to “other property of the same

classification in the same zoning district,” A.R.S. § 9-462.06(G)(2), and have

nothing to do with Jachimek’s personal preference.

¶30 We are also unpersuaded by the court of appeals’ reliance on

Minney v. City of Azusa, 330 P.2d 255 (Cal. Dist. Ct. App. 1958), for the

proposition that “[o]ne who purchases property in anticipation of

procuring a variance to enable him to use it for a purpose forbidden at the

time of sale cannot complain of hardship ensuing from a denial of the

desired variance.” Pawn II, 239 Ariz. at 545 ¶ 26. In Minney, the California

Court of Appeals upheld the denial of a variance where an owner

purchased a lot in a residential zone and sought to construct a church. 330

P.2d at 257. Because Minney involved a use variance, it is inapposite. See

Arden H. Rathkopf et al., 3 Rathkopf’s The Law of Zoning and Planning

§ 58.22 (4th ed. 2017) (noting that classification of prior knowledge of

special circumstances as a self-imposed hardship arose in the context of use

variances). Unlike Minney’s use variance, Jachimek’s proposed use was

permissible and the area variance would not alter the character of the

neighborhood.

¶31 Arizona zoning statutes and local ordinances require boards

of adjustment to consider special circumstances applicable to the property,

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

not the property owner. See, e.g., Burns, 156 Ariz. at 504 (explaining that a

variance “is a legal status granted to a certain parcel of realty without

regard to ownership,” and “[p]ersonal hardships, regardless of how

compelling or how far beyond the control of the individual applicant, do

not provide sufficient grounds for the granting of a variance” (citation

omitted)); Julian Conrad Juergensmeyer et al., Land Use Planning and

Development Regulation Law § 5.17 (3d ed. 2017) (“Most courts consider

the transfer of title irrelevant . . . [because] the zoning, not the person,

creates the hardship.”). Thus, in the context of area variances, we consider

whether strictly applying the zoning requirements would deprive an owner

of the same privileges owners of other similarly zoned property enjoy.

Special circumstances are not “self-imposed” when the owner wants to use

the property in a way permitted to other similarly situated properties, but

cannot do so because of externally imposed circumstances like those

involved here. Although it is fair to say that Jachimek voluntarily acquired

the Property subject to the special circumstances, he certainly did not create

them.

¶32 The court of appeals’ rule would impose an undue restraint

on alienation, as anyone purchasing a property with knowledge of the

restriction would have no ability to obtain an area variance. This approach

would give purchasers fewer property rights than sellers and, thus, would

contravene our case law and longstanding legal tradition in favor of

alienation. See, e.g., Tovrea v. Umphress, 27 Ariz. App. 513, 517 (1976) (noting

that “[r]estraints on alienation are generally disfavored”); see also Lamb v.

Zoning Bd. of Appeals of Taunton, 923 N.E.2d 1078, 1081 (Mass. App. Ct. 2010)

(citing Arden H. Rathkopf et al., 3 Rathkopf’s The Law of Zoning and

Planning § 58.22 at 141–148 (1991), stating “because a purchaser of property

acquires no greater right to a variance than his predecessor, he should not

be held to acquire less” and finding that “[t]o hold otherwise would

discourage the free alienability of real property and the efficient use of

land” (citations omitted)). Accordingly, we reject the court of appeals’ rule

and hold that an applicant or owner’s selection of a property, even with

knowledge that an area variance is required for an intended use allowed on

other similarly zoned properties, does not itself constitute a self-imposed

special circumstance precluding an area variance.

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PAWN 1ST, LLC V. CITY OF PHOENIX, ET AL.

Opinion of the Court

CONCLUSION

¶33 The Board acted within its discretion in finding that special

circumstances applied to the Property; that the variance required was an

area variance; that Jachimek did not create the special circumstances; that

the variance was necessary for the preservation and enjoyment of

substantial property rights; and that the variance would not be materially

detrimental to the surrounding area. Accordingly, we vacate the court of

appeals’ opinion and affirm the superior court’s judgment upholding the

Board’s variance and granting summary judgment in Jachimek’s favor. We

deny Pawn’s request for attorney fees because it is not the prevailing party.

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