Posted by: Patricia Salkin | June 21, 2021

Eleventh Circuit Court of Appeals Concluded City’s Rezoning of Property After Developer Invested $3.5M Constituted a Regulatory Taking Without Just Compensation

This post was authored by Olena Botshteyn, Esq.

In 1994, SGV, a real estate company, purchased 547 acres of land in the City of Alabaster with the purpose of developing various types of houses. In 1995, the City approved the Master Plan for the proposed development, which separated the land into three zones: R-2 90-foot wide single-family residences, R-4 60-foot wide garden homes, and R-7 townhomes. Sector 16, which constituted 142 acres of land remained undeveloped after the 2008 recession, unlike the rest of the land. The sector was initially zoned predominantly for R-4 and R-7 with a small part as R-2, but in 2011 the City rezoned Sector 16 for R-2 lots only.

In 2013, SGV commenced this action against the City, claiming unlawful taking of property without just compensation. Before trial, the parties moved to exclude certain types of evidence, including the City’s motion to exclude evidence challenging zoning regulations as irrelevant in the case where just compensation for a taking was sought, and SGV’s motion to exclude evidence on the subsequent foreclosures on its property. The district court granted SGV’s motion and dismissed the motion by the City. At trial, the City argued for the first time that the case was not ripe, because SGV never sought a variance from the zoning regulation, meaning that there was no final decision as to the application of the regulation to the subject property. The court concluded that “a zoning ordinance was a final matter which could be adjudicated,” and that the City never rezoned Sector 16 to the initial zoning and therefore intended the new zoning as final.

At trial, the jury heard the evidence from David Cox, an owner of a local construction company, who testified about his intent to purchase R-4 properties in 2005 when they were still allowed in Sector 16 and were in the development stage, as well as about his lack of interest in purchasing R-2 properties. City employees testified as to City’s motivation for the rezoning. SGV representatives then testified about the total of $3,5 million spent to develop Sector 16 before the recession hit the economy and about the lack of economic feasibility of R-2 homes. The jury ultimately found that there was a regulatory taking without just compensation and awarded damages in the amount of $3,5 million. The City appealed, claiming that the case was not ripe as well as several evidentiary issues.

With regard to ripeness, the court found that the district court did not err in concluding that the case was ripe for adjudication. While a final decision regarding the application of the ordinance is required for the case to be ripe, a zoning ordinance can itself be a final decision on the merits if it is clear how it applies to the property in question. The City’s ordinance targeted precisely Sector 16 and there was no ambiguity as to how it would apply. The ordinance itself was thus a final decision here, and the case was ripe.

The court further concluded that some of the evidence admitted by the district court with regard to the City’s reasoning of zoning regulations was beyond what was relevant to the just compensation claim. While the district court relied on the caselaw, which provided “the character of the governmental action” as a relevant factor in the takings case, the Supreme Court later found that “this formula prescribes an inquiry in the nature of a due process, not a takings test.” However, the court found that by admitting the evidence of the City’s motivations for rezoning the district court made a harmless error, as other evidence clearly suggested that developing Sector 16 into R-2 was not economically feasible for SGV and by the time rezoning occurred, SGV had invested in its development a large sum of money.

Finally, the court concluded that the district court did not err when it allowed David Cox to testify that he would have been interested in purchasing SGV’s R-4 lots, but not R-2 lots, if they were on the market in 2011. The court found this testimony to be relevant to the just compensation claim, which allowed SGV to show that there was a potential market for this type of properties before the rezoning took place. The court thus affirmed the district court’s decision.

South Grande View Development Company, Inc. v City of Alabaster, AL, 1 F. 4th 1299 (11th Cir. CA 6/21/2021)

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