ABSTRACT: With regard to FLANDERS FOUNDATION, Petitioner and Plaintiff, v. CITY OF CARMEL-BY-THE-SEA, CITY OF CARMEL-BY-THE-SEA CITY COUNCIL, Respondents and Defendants (CASE NO. M99437), selected excerpts from Respondents Brief are presented; emphasis is placed on the "Lease of the Flanders Mansion Is Infeasible on Economic and Public Policy Grounds" section, and it is reproduced in its entirety. The Hearing is scheduled for Wednesday, February 10, 2010, Courtroom 14, Judge Kay T. Kingsley, Monterey Courthouse.
Donald G. Freeman (SBN 47833)
Perry & Freeman
PO Box 805
Carmel, CA 93921-0805
Richard K. Harray (SBN 41978)
Kennedy, Archer & Harray
24591 Silver Cloud Ct Ste 200
Monterey, CA 93940
Attorneys for
CITY OF CARMEL-BY-THE-SEA AND CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA
Filed December 14, 2009
SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF MONTEREY
FLANDERS FOUNDATION,
Petitioner and Plaintiff,
v.
CITY OF CARMEL-BY-THE-SEA, CITY OF CARMEL-BY-THE-SEA CITY COUNCIL,
Respondents and Defendants
CASE NO. M99437
ISSUES
The issues before the Court are:
1. Does res judicata preclude the litigation of all Surplus Land Act, deferred mitigation, and General Plan consistency claims?
2. Did the City follow proper procedures relating to the proposed sale of the Mansion parcel?
3. Does substantial evidence support the City’s findings that the lease alternatives are infeasible?
4. Does substantial evidence support the City’s statement of overriding considerations?
ARGUMENT
A. Res Judicata Precludes the Litigation of All Surplus Land Act, Deferred Mitigation, and General Plan Consistency Claims.
B. The EIR is Adequate and Complete
1. Statutory and Regulatory Framework of CEQA
2 Surplus Land Act Claims
a. Analysis of Environmental Effects Relating to the Surplus Land Act is Adequate
3. Responses to Comments
C. Analysis of Economic Feasibility
1. An Analysis of Economic Feasibility Is Not Required To Be in the 2009 EIR.
2. The CBRE Report Is Adequate.
3. Lease of the Flanders Mansion Is Infeasibility on Economic and Public Policy Grounds.
The City concurs with Petitioner that the 2009 EIR has identified significant unavoidable impacts of the Project. And where an EIR has identified significant unavoidable impacts, an agency may not approve the project unless it first finds that “[s]pecific economic, legal, social, technological, or other considerations…make infeasible the mitigation measures or alternatives identified...” (Pub. Resources Code 21081(a)(3); Guidelines 15091(a)(3).)
a. Lease of the Flanders Mansion Is Infeasible on Economic Grounds
A lease of the Flanders Mansion, whether a lease for single-family residential use (“Single-Family Lease”) or a lease for public/quasi-public use (“Public/Quasi-Public Lease”), is not a feasible alternative (collectively, the “Lease Alternatives”). More specifically, after a careful and thorough review of an exhaustive economic analysis, the City has found both lease alternatives infeasible on economic grounds.
As noted by Petitioner, in assessing the sufficiency of the City’s findings regarding the feasibility of the Lease Alternatives, the Court is to apply the highly deferential substantial evidence standard of review. (California Native Plant, supra, 177 Cal.App.4th at 982.) In other words, with all reasonable doubts resolved in favor of the City’s conclusions, in light of the record as a whole, if there is enough relevant information and reasonable inferences from this information that a fair argument can be made to support such findings, even though other conclusions might also be reached, there was no abuse of discretion. (See Laurel I, supra, 47 Cal.3d 376, 392-3.)
“Feasibility” is defined in CEQA to mean “capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, social, and technological factors.” (Pub. Resources Code 21061.1 (emphasis added).) As the italicized language above shows, economic viability is one of the factors that may be taken into account in addressing the feasibility of an alternative. (Guidelines 15126.6(f)(1).)
Case law interpreting CEQA over the last few decades has distilled two key concepts related to findings of economic infeasibility: comparison and impracticality. Both are addressed below.
Regarding comparison, courts have stressed the importance, when determining economic infeasibility, that there exists somewhere in the record “evidence which analyzes the alternatives in terms of comparative costs, comparative profits or losses, or to the extent appropriate, comparative economic benefit to the [local agency], nearby communities, or the public at large.” (Goleta I, supra, 197 Cal.App.3d at 1180.) In short, there needs to be a basis for a comparative analysis between the project and the alternatives found economically infeasible, as in the absence of such comparative data and analysis “no meaningful conclusions regarding the feasibility of the alternative [can be] reached.”
The exhaustive two-hundred-plus-page CBRE Report compared the Single-Family Lease alternative, the Public/Quasi-Public Lease alternative, the sale as a single-family residence (“Single-Family Sale”) alternative, and the sale as non-residential property (“Non-Residential Sale”) alternative all to one another, both assuming that the $1,157,000 estimated cost of rehabilitating the Mansion had been paid by the City and assuming that it had not. The CBRE Report’s conclusions are as follows.
The Single-Family Lease alternative was determined to be virtually impossible in a scenario where a potential lessee was responsible for covering the $1,157,000 cost of rehabilitating the Mansion because an already “exceedingly thin” market for comparable rentals would become non-existent. Assuming the City paid for the rehabilitation and a Single-Family Lease were effected and remained constant despite the “exceedingly thin” market, it would take 17 years for the City to recoup the $1,157,000; in other words, it would take 17 years for the City to break even. Only after the break-even point would the City generate readily-available funds, likely receiving roughly $68,000 a year in annual net operating income.
The conclusions regarding an ”exceedingly thin” rental market are similar for the Public/Quasi-Public Lease alternative. (“a very limited market for comparable non-residential rentals”). Again, assuming the City paid for the rehabilitation, and a Public/Quasi-Public Lease were effected and remained constant despite the sparse market, it would take 8.7 years for the City to recoup the cost of rehabilitation; in other words, it would take 8.7 years for the City to break even. Only after the break-even point would the city generate readily-available funds, likely receiving roughly $132,000 a year in annual net operating income.
In dramatic contrast are the CBRE Report’s conclusions regarding the Single-Family Sale and the Non-Residential Sale alternatives. Regardless of whether the City paid the rehabilitation cost or not, the Single-Family Sale would net the City $2,843,000, and the Non-Residential Sale would net the City $890,000, either amount immediately available to be utilized by the City for the benefit of its citizens.
The above comparison, clearly satisfies the requirement of the California Supreme Court for evidence in the record showing an analysis of the alternatives in terms of comparative costs, comparative profits or losses, or to the extent appropriate, comparative economic benefit to the local agency. (See Goleta I, supra, 197 Cal.App.3d at 1180.)
In regard to impracticality, “the fact that an alternative may be more expensive or less profitable is not sufficient to show that the alternative is financially infeasible...[w]hat is required is evidence that the additional costs or lost profitability are sufficiently severe as to render it impractical to proceed with the [alternative].”
In San Franciscans Upholding, the court found such impracticality applying facts similar to ours. (102 Cal.App.4th 656.) The proposed project called for the replacement of most of the Emporium Building, considered one of the preeminent historical buildings in San Francisco, with new construction so that it could house a Bloomingdale’s, a restaurant, other retail and office space, and a hotel, among other things. A detailed economic analysis of each of the five proposed alternatives calculated development costs (similar in concept to the Mansion’s rehabilitation cost) and projected revenue streams. The similarity to our case is that the court found economic infeasibility based on a disparity between the alternatives and the proposed project with regard to additional costs and lost profitability that were “sufficiently severe as to render them impractical.”
Here, the City has analyzed the Lease Alternatives, and determined that they will cost the City an initial investment of $1,157,000, for which the city will not see a positive return from anywhere between 8.7 and 17 years. This assumes, of course, that despite expert opinion that the rental market for such a unique property is “exceedingly thin,” the City will be able to find and keep a lessee for that entire period. Only if all of the foregoing occurs, only if everything goes right, will the City see funds ranging from $68,000 to $132,000 annually. The City has compared these alternatives to both a Single-Family Sale and Non-Residential Sale, which are not subject to the vagaries of a sparse rental market, and which will likely net the City between $890,000 and $2,843,000 as soon as the Mansion Parcel is sold. The comparative difference in returns, both with regard to amount and time, is sufficiently severe as to render the lease alternatives impractical. And every bit as important, the extreme remoteness of finding a lessor also makes the lease option impractical, if not virtually impossible.
Petitioner, with what it believes is the full might of Uphold Our Heritage behind it, argues that such findings of economic infeasibility are not supported by substantial evidence in the record. However, Uphold Our Heritage supports the City’s findings of economic infeasibility instead of Petitioner’s argument. In Uphold Our Heritage, the town of Woodside issued a permit to Steve Jobs authorizing demolition of a mansion of historic significance (the “Jackling House”) on his property so that he could build a private residence. (147 Cal.App.4th at 594.) Five alternatives were proffered and four rejected by Woodside due to economic infeasibility. It is crucial to the understanding of the court’s holding to note that because Steve Jobs declined to submit any information regarding how much it would cost to build his private residence there was no such information in the record. Woodside contended that the findings of infeasibility were supported by the evidence that the cost of rehabilitation was estimated to range from $4.9 million, based on the analysis in the EIR, to between $5 and $10 million, as estimated by Steve Jobs. In other words, if Steve Jobs paid to rehabilitate the house and live in it, rather than building a private residence, it would cost between $4.9 and $10 million. But this was not enough for a finding of economic infeasibility. The court explained that “[i]f the cost of renovation exceeds the cost of new construction, it is the magnitude of the difference that will determine the feasibility.” But because there was no information on the cost of building a new residence in the record, “[t]here is no evidence of any economic analysis whatsoever to compare the cost of the proposed project alternatives versus the cost of the proposed project, i.e., the estimated cost of the new residence...[t]hat the alternatives may cost millions of dollars is not enough information as it has no context.” Nevertheless, the court did determine that because two alternatives would clearly cost $5 million in addition to the cost of building a new home, there is a reasonable inference that these alternatives are not economically feasible.
Here, the CBRE Report shows that a Single-Family Sale will net the City $2,843,000 and a Non-Residential Sale will net the City $890,000, while the Lease Alternatives will cost the City $1,157,000 up front, a difference of between $4,000,000 and $2,047,000, respectively. Admittedly, if the City were able to lease the Mansion Parcel in light of the extremely sparse rental market for such a unique property and keep it occupied, it would recoup that initial $1,157,000 investment somewhere between 8.7 years (with $132,000 in rent) and 17 years (with $68,000 in rent). After that, the City would net between $68,000 and $132,000 annually. Thus, assuming that the Mansion Parcel is leased continually, and as has been shown that is not a probable event, and not taking into account the time value of money, it will take the City between 15.5 years (with $132,000 in rent) and 30 years (with $68,000 in rent) to obtain the $890,000 it could net now upon a Non-Residential Sale and it will take the City between 30.2 years (with $132,000 in rent) and 58.8 years (with $68,000 in rent) to obtain the $2,843,000 that it could net now upon a Single-Family Sale. This renders the Lease Alternatives economically infeasible.
Petitioner attempts to discount the disparity in the comparative analysis by arguing that with a lease the Mansion will “continue to escalate in value”; thus, “[i]f someday an unlikely event occurs and Carmel needs funding...the property will still be available for sale at that time at an ever-increasing value.” Perhaps Petitioner has forgotten that for the past four years it has attempted to thwart the City’s attempts to sell the Mansion. Now, when it suits Petitioner’s argument, it states that the City may do so, someday, and thus the rehabilitation cost does not contribute to a finding of economic infeasibility because it is actually an investment that would “immediately translate into increased property value.” The City finds such an argument untenable and somewhat disingenuous.
Petitioner also argues that the conclusions of the two-hundred-plus page CBRE Report regarding the “exceedingly thin” rental market is nothing but a “vague statement” (i.e., unsubstantial evidence). The City commissioned experts in the field to conduct a thorough analysis and one of the conclusions of such experts is that the rental market for the Mansion is “exceedingly thin.” The City sees no reason why it should discount such conclusion. In contrast to the alleged “vague statement” of the CBRE Report, supported by extensive research and expertise, and conducted in 2009, Petitioner appears to assert that the following, ostensibly non-vague, well-supported claims prove that full restoration at no cost to the City, and even a lease of the Mansion, are all but assured: (i) comments the Flanders Foundation made to the City Council on May 4, 2009; and (ii) the Flanders Foundation’s 1999 thirteen-page business plan, with attached accountant’s report, also dated 1999. The fact that other, outdated “evidence” may be found in the record does not render the CBRE Report’s conclusions and findings unsubstantial evidence.
Finally, Petitioner points out the City’s “$11 million reserves and budget surplus” as if it is a factor relevant to this analysis. The City would like to clarify for the Court that in determining economic infeasibility, the wealth of the project proponent is irrelevant. As stated elsewhere in this brief, in rejecting a claim that “the financial wherewithal of the project applicant bears upon the feasibility of...project alternatives,” the Uphold Our Heritage court clarified that, “the question is not whether [the project proponent] can afford the proposed alternative, but whether the marginal costs of the alternative as compared to the cost of the proposed project are so great that a reasonably prudent property owner would not proceed with the rehabilitation.” (147 Cal.App.4th at 599-600.)
b. Lease of the Flanders Mansion in Infeasible on Public Policy Grounds
In addition to finding the Lease Alternatives economically infeasible, the City has also found them infeasible on public policy grounds. The primary purpose of the Proposed Project is to divest the City of the Mansion Parcel, which is in need of short-term and long-term repair and rehabilitation. The City has determined that neither lease alternative achieves this primary purpose of divestment. In additional, the City’s findings set forth in 2AR8:1871-1886 make it clear that the City found the Lease Alternatives infeasible, not simply on economic grounds, but also because they cannot achieve the primary project purpose of divestment. (2AR8:1878 “the Lease Alternatives would retain City ownership of the [Mansion Parcel]”; 2AR8:1880 “specific economic and other factors make infeasible...leasing the Flanders Mansion”) Furthermore, the City found the “No Project” alternative infeasible because retention of the Flanders Mansion fails to achieve the primary project purpose of divestment; thus, because the Lease Alternatives also fail to achieve divestment, it can be readily deduced that they were found infeasible for the same reason. This deduction is supported by the following statement by the City” “The City [], having reviewed the Economic Feasibility Analysis...along with the discussion of the alternatives in Sections 6.0 through 6.7 of the RFEIR [Section 6.4 notes that neither of the lease alternatives achieves the primary project purpose] finds that both lease alternatives...are infeasible under the legal standards for infeasibility under CEQA.”
As very recently noted by the Sixth District, “an alternative may be found infeasible on the ground that it is inconsistent with the project objectives as long as the finding is supported by substantial evidence in the record.” (California Native Plant 177 Cal.App.4th at 1001.) In California Native Plant, the Sixth District agreed with the local agency that it was “legally justified in rejecting environmentally superior alternatives as ‘infeasible’ on the basis of its determination that the alternatives were undesirable from a policy standpoint because they failed to achieve...the primary objectives…of the [project].”(see also Sequoyah Hills, supra, 23 Cal.App.4th at 715 [holding that decisionmakers are permitted to reject as ‘infeasible’ an alternative not fully satisfying the objectives of a proposed project].) The Sixth District found such a determination by the local agency was both justified under relevant case law and consistent with statutory factors.
Furthermore, any argument that the City merely rejected the Lease Alternatives because it did not like them, not because they were truly influenced on public policy grounds, should fail. Just such an argument was rejected in California Native Plant, with the Sixth District characterizing it as “nothing more than a policy disagreement with the [local agency.]” More specifically, the Sixth District determined that while its case did not involve “straightforward questions of legal or economic feasibility...and that such cases may present brighter lines for judicial review,” the local agency in making its finding on infeasibility “determined how the numerous competing and necessarily conflicting interests should be resolved” and that it was “wholly improper for [the court] to arrogate to [itself] a policy decision which is properly the mandate of the [local agency].”
In summary, the City has found the Lease Alternatives infeasibility, both on economic and public policy grounds. Such findings are supported by substantive evidence.
D. the Statement of Overriding considerations Is Supported by Substantial Evidence.
CONCLUSION
It is not the City’s intention to impugn the integrity of Petitioner’s multiple challenges to the City’s attempts to divest itself of the Mansion Parcel. Indeed, the City understands and accepts that such challenges are an inexorable aspect of CEQA and environmental protection in California. Nevertheless, the City would like to gently remind the Court that: “the wisdom of approving [the divestment of the Mansion Parcel], a delicate task which requires a balancing of interests, is necessarily left to the sound discretion of the local officials and their constituents who are responsible for such decisions.” (Goleta II, supra, 52 Cal.3d 576.) CEQA “simply requires that those decisions be informed, and therefore balanced.” Thus, as the California Supreme Court has cautioned, “rules regulating the protection of the environment must not be subverted into an instrument for the oppression and delay of social, economic, or recreational development and advancement.”
Res judicata precludes litigation of all Surplus Land Act, deferred mitigation, and General Plan consistency claims. Nonetheless, the City’s actions were correct and in full compliance with the law. The Writ of Mandamus should be denied.
Dated: December 14, 2009
KENNEDY, ARCHER & HARRAY
By: Richard K. Harray
Attorneys of Respondent
CITY OF CARMEL-BY-THE-SEA
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