By Cori M. Badgley

In Ocean Harbor House Homeowners Association v. California Coastal Commission (2008) 163 Cal.App.4th 215, the California Coastal Commission (“Commission”) imposed a $5.3 million mitigation fee on a homeowner’s association that needed a permit to build a seawall to protect residences that would otherwise fall into the ocean. Attempting to find relief from the fee, the homeowner’s association sued the Commission, but the court denied all relief and upheld the fee.

The condominiums that are part of the Ocean Harbor House Homeowners Association (“HOA”) in the City of Monterey (“City”) sit at the edge of the shore, and the buildings facing the ocean have been battered by storms, high water level, and erosion. In a last ditch effort to save the buildings, the HOA applied to the City for a permit to build a seawall. Following approval by the City, the HOA approached the Commission for a coastal development permit. Although the permit was granted, the Commission imposed various conditions on the permit – one of which required the HOA to pay over $5 million to mitigate the loss of recreational beach that will be caused by the seawall. The HOA brought suit against the Commission in order to overturn the imposition of the $5 million fee.

After losing at the trial court, the HOA appealed on four grounds: 1) the fee amounted to an unconstitutional taking, 2) “the Commission lacked statutory authority to impose the fee,” 3) “the fee is not supported by substantial evidence,” and 4) “the Commission arbitrarily increased the amount of the fee.” The court found against the HOA on all four grounds and upheld imposition of the fee.

Fee Not a Taking

A fee amounts to a taking if it lacks the proper nexus or it is not roughly proportionate. This has become known as the Nollan and Dolan test. (See Nollan v. California Coastal Comm’n (1987) 483 U.S. 825; Dolan v. City of Tigard (1994) 512 U.S. 374.) In order to have the proper nexus, there must be a “logical link” between the fee and the identified impact of the project. The nexus is close enough if the fee is roughly proportionate to the size of the impact of the project.

Here, the impact identified by the Commission and referred to by the court consisted of the elimination over the next 50 years of an acre of recreational beach caused by the construction of the seawall. In order to mitigate this impact, the Commission imposed a $5.3 million mitigation fee that would be used to purchase and maintain a beach off-site. The court began by addressing whether the proper nexus between the impact and the fee existed.

The HOA argued that “purchasing beach property somewhere else has no tendency to mitigate the loss of beach at the complex” and the fee related more to the loss of economic business than the loss of recreational use. In disagreeing with the HOA, the court found that the purpose of the fee as stated in the record was to recoup the recreational value beach goers place on one acre of beach in the City and use it to purchase equivalent beach elsewhere. This purpose is directly related to the impact – the loss of recreational use of the beach. Therefore, a proper nexus existed.

Secondly, the court addressed whether the fee was roughly proportionate to the impact. The Commission’s staff presented the Commission with three different methods for calculating the fee: the cost of replacement sand (approximately $1 million), the price of a comparable acre of beach (approximately $1 million), and the recreational value of the beach lost ($5.3 million). The staff recommended using the second method, economic loss, although the staff admitted that this most likely underestimated the beach’s value. During the hearing, one of the Commissioners recommended that the third method be used and a fee of $5.3 million (decreased to present day value) be used. The Commission approved the permit and imposed the $5.3 million fee under the recreational value method.

After analyzing the lengthy studies relied upon by staff in justifying the $5.3 million, the court held that the fee was roughly proportionate. According to the court, the Commission went above and beyond what was necessary to show the direct proportionality of the fee to the identified impact.

Fee Supported by Substantial Evidence

Relying on the same studies and reports as used in its takings analysis, the court had no problem finding that the fee and its amount were supported by substantial evidence. The HOA argued that none of the studies looked specifically at the City’s beach and comparing the City’s beach to beaches in different climates was arbitrary and capricious. In rebuking the HOA’s arguments, the court pointed to another methodology outlined in the record and used by the Commission in making its decision – the analytical approach called “benefit transfer." Benefit transfer simply means that studies done of comparable areas are evaluated “for equivalence, quality, and relevance” and used to analyze the area at issue. The court stated that this was an acceptable and preferable analytical approach that saves time and money. In light of all the evidence in the record laying out the Commission’s thought-process, the court held that the Commission’s imposition of the fee was supported by substantial evidence.

Commission Had Statutory Authority to Impose the Fee

The California Coastal Act requires that the Commission shall grant permits to construct seawalls “to protect existing structures… and when designed to eliminate or mitigate adverse impacts on local shoreline and supply.” (Pub. Resources Code, § 30235.) Although the Commission agreed that Section 30235 applied, it did not agree with the HOA’s argument that Section 30235 requires the Commission to grant the permit without any conditions, or at least without the $5.3 million mitigation fee. In agreement with the Commission’s interpretation, the court found that Section 30235 must be read in conjunction with the rest of the Coastal Act. Even if the Commission had to grant a permit, mitigation measures can still be imposed in order to ensure that the seawall will have the least impact possible. Therefore, the Commission had the statutory authority to impose the fee.

Commission Did Not Engage in a Post Hoc Rationalization

Relying on cases where a governmental body made a decision before the rationale for that decision was documented, the HOA argued that the Commission decided to impose the fee at the first hearing and then staff developed the reasoning for that decision prior to the approval hearing. The court again pointed to the record and the plethora of evidence that was before the board at the first hearing. Although staff did change its recommendation to reflect the Commission’s selection of the recreational value methodology, the support for that recommendation was already in the record. The court found that the record showed the rationale for the imposition of the fee existed and was relied on prior to the Commission’s decision. Therefore, the Commission did not engage in any illegal post hoc rationalization.

After finding against the HOA on all grounds, the court upheld the Commission’s decision, and the HOA must pay the fee. This case illustrates what a good, detailed record can do for a government agency. Throughout the opinion, the court kept referring back to the record and commenting on the high level of detail and analysis. A thorough record can make it easier for a court to find in favor of the agency.

Cori Badgley is an associate with Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.