Opinion
No. C-01-4823 EMC.
May 4, 2005
FINDINGS OF FACT AND CONCLUSIONS OF LAW (DAMAGES PHASE)
Plaintiff North Pacifica LLC ("NP") filed suit against Defendant the City of Pacifica ("City" or "Pacifica"), alleging that its constitutional rights were violated through the City's handling and treatment of NP's development permit application for a condominium project. The Court dismissed NP's claims for violation of substantive due process but allowed NP to proceed with its claims for violation of equal protection.
The parties subsequently filed cross-motions for summary judgment regarding the equal protection claims. In its motion for summary judgment, NP raised an equal protection claim that had not previously been included in its second amended complaint — namely, that the City violated NP's right to equal protection by imposing on NP's development project a condition of approval, known as Condition 13(b), that was more onerous than that imposed on similarly situated development projects. See Docket No. 108 (NP's motion for summary judgment, filed on 5/8/03). Although this claim was not a part of NP's complaint, the issue was fully briefed by the parties and the Court allowed NP to file a supplemental pleading to include the claim. The Court then granted summary judgment to the City on all of NP's equal protection claims except for the new claim regarding Condition 13(b). See Docket Nos. 180, 216 (orders, filed on 6/30/03 and 7/15/03). NP was permitted to file an amended complaint formally addressing the equal protection claim.
The Court thereafter bifurcated the trial on the remaining equal protection claim into a liability phase and a damages phase. See Docket No. 198 (order, filed on 7/7/03). Because neither party had demanded a trial by jury, the action proceeded to a bench trial, with the liability phase beginning on July 28, 2003, and ending on August 1, 2003. On October 23, 2003, the Court issued findings of fact and conclusions of law on liability, determining that the City had violated NP's right to equal protection by imposing Condition 13(b) on NP's development project. See Docket No. 264 (order, filed on 10/23/03). On February 7, 2005, the damages phase of the trial began. Testimony and evidence were presented from February 7 to 11, 2005, and closing arguments on March 16, 2005. Having considered the testimony of the witnesses and the documentary evidence presented, and having evaluated the weight, consistency, and credibility of the same, the Court concludes that NP is entitled to damages in the amount of $156,741.19, which includes prejudgment interest. This conclusion is without prejudice to NP moving for attorney's fees under § 1988.
I. FINDINGS OF FACT
A. Approval of NP's Development Permit Application
1. NP entered into a contract to purchase certain real property located in the City. This property is commonly known as the Bowl. NP has not yet closed escrow on the Bowl property. See Liability FF ¶ 3.
2. On or about August 1, 1999, NP submitted an application to the City seeking permits for the development of a condominium project on the Bowl. See id. ¶¶ 3-4. The development permits sought were a site development permit, a use permit, a coastal development permit, and a vesting tentative subdivision (condominium) map. See id. ¶ 24 n. 4. On June 5, 2001, the City deemed NP's development permit application complete. See id. ¶ 4.
3. On July 12, 2002, the Planning Commission approved NP's application, subject to thirty-nine conditions recommended by the Planning Department staff, including Condition 13(b). See id. ¶ 24. Condition 13(b) provided: "The Declaration [of Covenants, Conditions Restrictions (CCRs)] shall specify that the owners of each of the residential units shall be responsible jointly and severally, for the repair, maintenance and replacement of the building exteriors, common areas, parking, landscaping, building signage and improvement and maintenance of Edgemar Road to the satisfaction of the City." Id. ¶ 14. A local citizen subsequently appealed the Planning Commission's decision to approve the permits to the City Council. See id. ¶ 25.
As used herein, "Condition 13(b)" is a short-hand reference to the joint and several liability provision at issue in the instant case.
4. On August 12, 2002, the City Council held a hearing on the appeal. See id. ¶ 26. The City Council denied the appeal and basically upheld the Planning Commission's decision. See id. ¶ 38. Condition 13(b) remained one of the conditions of approval.
5. On September 11, 2002, the City sent a letter to NP, stating that the City Council had approved the permits at its meeting on August 12, 2002. The City also stated that the permits would expire on August 12, 2003, and the tentative map on August 12, 2004. See Ex. C (letter from M. Crabtree to R. Kalmbach, dated 9/11/02).
B. California Coastal Commission Litigation
6. On or about August 19, 2002, the City issued a notice of final local action regarding NP's coastal development permit. See Ex. A (letter from P. Imhof to M. Crabtree, dated 8/23/02). In the notice, a copy of which was sent to the California Coastal Commission, the City made the determination that the Coastal Commission did not have appellate jurisdiction over the issuance of the coastal development permit to NP. See id.; Liability FF ¶ 93.
7. On August 23, 2002, Peter Imhof of the California Coastal Commission sent a letter to the City Planner, Michael Crabtree, expressing disagreement with the City's conclusion that the permit was not appealable to the Coastal Commission. See Ex. A (letter from P. Imhof to M. Crabtree, dated 8/23/02). NP was copied on the letter. Mr. Imhof's letter stated in part as follows:
Based on review of the approved permit, the City's findings of approval, and the materials previously circulated in connection with the certification of the EIR [ i.e., environmental impact report], the Executive Director has determined that the City's approval includes development that is located within 100 feet of a wetland, as that term is defined in the Commission regulations for purposes of identifying the Commission's appellate jurisdiction. In addition, . . . the City's approval may also be appealable because it includes development less than 300 feet from the top of the seaward face of the coastal bluff west of Palmetto Avenue."Id. The letter also stated: "Section 13569 of the Commission regulations provides for the Commission review of local government determinations of permit appealability. If the City disagrees with the Executive Director's determination that the project comes within the Commission's appellate jurisdiction . . ., a Commission hearing will be scheduled in accordance with Section 13569(d) to resolve the disagreement." Id.
8. On September 11, 2002, Cecilia Quick, the City Attorney, responded to Mr. Imhof's letter, defending the City's determination. See Ex. B (letter from C. Quick to P. Imhof, dated 9/11/02). Keith Fromm, one of the members of NP, was copied on the letter. Subsequently, Mr. Imhof notified Mr. Fromm by letter that the Coastal Commission was scheduling a hearing in December 2002 to resolve the question of its appellate jurisdiction. See Ex. 89 (letter from P. Imhof to K. Fromm, dated 9/17/02). Mr. Imhof's letter noted that "[t]he Commission does not consider any coastal development permit issued prior to resolution of this question to be effective, and any development undertaken pursuant to such a permit could constitute a violation of the Coastal Act and be subject to enforcement action." Id. Ms. Quick was copied on the letter.
(1) San Mateo County Superior Court, No. 426268
9. On October 7, 2002, NP filed suit against the Coastal Commission in San Mateo County Superior Court (Case No. 426268). See Liability FF ¶ 95; Def.'s Req. for Judicial Notice, Ex. B (NP's ex parte application and request, dated 10/7/02). NP sought an alternative writ of mandate and/or prohibition "to restrain and prohibit the Coastal Commission from exercising jurisdiction over the Coastal Development Permit." Id. NP also asked the state court to stay the Coastal Commission's suspension of the permit. See id.
10. On October 9, 2002, the state court issued an order staying the Coastal Commission from suspending NP's coastal development permit "until 15 days after the Court issues a final decision on the Petition for Writ of Mandate and/or Prohibition." Ex. 13U (order of San Mateo Superior Court in Case No. 426268, dated 10/9/02). Approximately a month later, the state court held that it did not have jurisdiction over NP's petition because NP had failed to exhaust its administrative remedies before the Coastal Commission. See Liability Ex. R (order of San Mateo Superior Court in Case No. 426268, filed on 11/19/02). The state court also dissolved the stay that had previously been issued. NP appealed the state court's decision, see Ex. 16 (NP's appellate brief, dated 10/31/03), but the appeal was not successful. NP subsequently filed a petition for review with the California Supreme Court on this matter. See Ex. 128 (NP's petition for review, dated 1/31/05). That petition was denied after the bench trial on damages herein concluded. See Def.'s Req. for Judicial Notice, Ex. A (order of California Supreme Court, filed on 3/16/05).
The City HAS asked the Court to take judicial notice of the California Supreme Court's decision, denying NP's petition. See Docket No. 488 (City's request for judicial notice, filed on 3/25/05). NP objected to the request. Having considered NP's objection, the Court hereby grants the request for judicial notice. It is not unfair to NP for the Court to take judicial notice of the decision given that it was NP who introduced at trial evidence that it had filed a petition with the California Supreme Court in the first place. A decision of a state court is judicially noticeable. See Opoka v. INS, 94 F.3d 392, 394-95 (7th Cir. 1996).
(2) San Mateo County Superior Court, No. 427550
11. On December 3, 2002, NP filed a second suit against the Coastal Commission in San Mateo County Superior Court (Case No. 427550) in another attempt to stop the Coastal Commission from exercising jurisdiction over NP's coastal development permit. See Liability FF ¶ 95; Ex. 13L (NP's petition, filed on 12/3/02). The state court issued an order staying the Coastal Commission's December hearing "until 15 days after the Court issues a final decision on the Petition for Writ of Mandate and/or Prohibition." Ex. 13W (order of San Mateo Superior Court in Case No. 427550, filed on 12/3/02). The order also barred the Coastal Commission from taking further action on NP's coastal development permit until such time. See id. The state court subsequently stayed all proceedings in the case until a final decision was reached in the first state court action (Case No. 426268). See Liability Ex. W (order of San Mateo Superior Court in Case No. 427550, dated 1/30/03).
Although NP did not ask that Exhibit 13L or Exhibit 13W be admitted into evidence, the Court takes judicial notice of the documents filed in state court.
C. Litigation in the Instant Case
12. As noted above, NP's second amended complaint did not include any claim of equal protection based on the City's imposition of Condition 13(b) on NP's development project. Rather, NP first asserted the claim based on Condition 13(b) when it filed its summary judgment motion on May 8, 2003. See Docket No. 108 (NP's motion for summary judgment, filed on 5/8/03). The claim was briefed by both parties.
13. On June 11, 2003, the Court held a hearing on NP's summary judgment motion as well as a summary judgment motion filed by the City. During the hearing, the Court questioned the parties about the merits of the Condition 13(b) claim which had been briefed by the parties. Subsequently, on June 17, 2003, Mr. Crabtree sent a letter to Robert Kalmbach, another member of NP, stating that Condition 13(b) would be interpreted consisted with what NP wanted in its letter of November 6, 2002 — i.e., there would be no requirement of joint and several liability. See Ex. E (letter from M. Crabtree to R. Kalmbach, dated 6/17/03). Ms. Quick, the City Attorney, did not sign but was copied on the letter.
14. The following month, the City extended NP's development permits, which were due to expire on August 14, 2003, to August 12, 2004. See Ex. 62 (letter from K. Fromm to M. Crabtree and City Council, dated 7/14/03). The City also extended the tentative map to August 12, 2005. See id. Thereafter, the liability phase of this trial was held from July 28, 2003, to August 1, 2003.
15. In September 2003, the Planning Commission approved a litigation stay for the tentative map for five years or until both the Coastal Commission lawsuits (Case Nos. 426268 and 427550) were final, whichever occurred first. See Ex. 63C (Planning Commission minutes, dated 9/2/03).
16. On October 23, 2003, this Court issued its findings of fact and conclusions of law for the liability phase of the trial. The Court determined that the City was liable for violating NP's right to equal protection in imposing Condition 13(b). See Docket No. 264 (findings of fact and conclusions of law, filed on 10/23/03).
D. Events Subsequent to Liability Determination
17. On November 10, 2003, the City Council held a hearing during which it directed staff to interpret Condition 13(b) as if it did not require joint and several liability. See Ex. F (City Council minutes, dated 11/10/03).
18. On January 20, 2004, the Planning Commission passed Resolution No. 800, which extended NP's development permits for five years or until the tentative map expired, whichever occurred first. See Ex. 36D (Planning Commission resolution, dated 1/20/04). The Planning Commission also passed Resolution No. 799, which approved an amendment to clarify Condition 13(b). See Ex. 36B (Planning Commission resolution, dated 1/20/04). The Planning Commission explained that Condition 13(b) was "never required and does not now require that each individual homeowner be jointly and severally liable." Id.
19. On January 21, 2004, counsel for the Coastal Commission, Joel Jacobs, proposed to NP that the parties settle all pending litigation between the Coastal Commission and NP for $300,000 to fund a one-acre wetlands restoration project in San Mateo County. See Ex. 13A (letter from J. Jacobs to J. Pope, dated 1/21/04).
20. On January 26, 2004, the City Council adopted Resolution No. 08-04, which endorsed the Planning Commission's action in approving Resolution No. 799. See Ex. 36B (City Council resolution, dated 1/26/04). Subsequently, a local citizen, John Curtis, appealed the City Council's action to the Coastal Commission.
21. On February 11, 2004, the City filed a motion, asking the Court either to dismiss NP's case or in the alternative grant summary judgment to the City because of the pending Coastal Commission litigation. See Docket No. 283 (City's motion to dismiss or for summary judgment, filed on 2/11/04). On April 16, 2004, the Court denied the motion and further provided guidance to the parties as to how the damages phase of the trial should proceed on the merits. See Docket No. 311 (order, filed on 4/16/04).
22. In early May 2004, NP received several letters of intent from prospective buyers of the development project. See Ex. M (under seal). The purchase price offers ranged from $9-11 million.
E. Damages
Because the Court has already made findings of fact regarding liability, these findings of fact focus on damages.
(1) Permanent Taking v. Temporary Taking
23. In a previous order, see Docket No. 311 (order, filed on 4/16/04), the Court stated that it was proper to analogize NP's equal protection claim based on Condition 13(b) to a takings claim for purposes of measuring damages because the net effect of the equal protection violation was to make development of NP's project more difficult, thus diminishing its value (until the condition was effectively removed or cured) and to add unnecessary costs and delay. The Court also stated that the conduct of the City would rise to the level of a permanent taking, as opposed to a temporary taking, only if Condition 13(b) was not worth curing.
24. The Court finds that there was a temporary taking in the instant case and not a permanent taking. NP has not demonstrated that Condition 13(b) was not worth curing. That the condition was worth curing is demonstrated by the fact that NP pursued the instant litigation and other litigation at substantial expense. For example, NP claims that it spent almost a million dollars in attorney's fees to litigate (1) the state suits against the Coastal Commission, (2) a separate suit against the City in state court (for violation of a different condition of approval), and (3) a federal suit against individual employees of the Coastal Commission. See Exs. 31C (under seal), 31E (under seal). Moreover, if the condition were not worth curing, then NP would have abandoned the development project. However, it has never done so, instead taking various steps to preserve the project such as continuing to pay the owners of the Bowl property to keep its option to purchase the land alive. That NP has chosen not to abandon the project is reasonable because, as discussed in greater detail below, at the time the City Council approved the project on August 12, 2002, it was worth (without the encumbrance of Condition 13(b)) $8 million, and that value has increased substantially during the course of this litigation to $11.25 million as of April 26, 2004. Indeed, in May 2004, NP received several letters of intent from prospective buyers of the development project. See Ex. M (under seal).
That these offers were made also demonstrates the weakness of NP's claim that the City's alleged collusion with the Coastal Commission after the Court issued its liability decision on October 23, 2003, completely "killed" NP's project.
25. In sum, NP was not permanently deprived of the value of the project. The value of the development project (without Condition 13(b)) far exceeded the cost of cure. The deprivation is thus analogous to a temporary taking. As this Court previously held, because NP's equal protection claim is analogous to a temporary taking, Herrington v. County of Sonoma, 834 F.2d 1488, 1503-06 (9th Cir. 1987) [hereinafter Herrington I], and its progeny, see Herrington v. County of Sonoma, 790 F. Supp. 909 (N.D. Cal. 1991) [hereinafter Herrington II], and 12 F.3d 901 (9th Cir. 1993) [hereinafter Herrington III], as well as Nemmers v. City of Dubuque, 764 F.2d 502 (8th Cir. 1985); and Wheeler v. City of Pleasant Grove, 833 F.2d 267 (11th Cir. 1987) [hereinafter Wheeler III], and 896 F.2d 1347 (11th Cir. 1990) [hereinafter Wheeler IV], are instructive on the proper measure of damages.
(2) Herrington v. Wheeler/Nemmers
26. As a preliminary matter, however, the Court takes note, on closer examination, of an analytical distinction between the Herrington cases and the Wheeler/ Nemmers cases that it did not delineate in its previous order on damages. See Docket No. 311 (order, filed on 4/16/04). In Herrington I, the Ninth Circuit took note of an expert's evaluation that a piece of property owned by the plaintiffs was worth $1.3 million with the potential to construct a subdivision and only $490,000 with no development rights. See Herrington I, 834 F.2d at 1504. Thus, there was a lost value of $810,000 during the restriction. However, this loss was only temporary; because the plaintiffs retained their property, "they have, at best, suffered delay in receiving the $810,000 [and] [t]hat delay is fully compensated by awarding interest ( i.e., loss of return) for delay in receipt of the lost value." Id. (emphasis in original).
27. Wheeler and Nemmers took a slightly different approach. For example, in Wheeler III, the Eleventh Circuit explained that,
[i]n the case of a temporary regulatory taking, the landowner's loss takes the form of injury to the property's potential for producing income or an expected profit. The landowner's compensable interest, therefore, is the return on the portion of fair market value that is lost as a result of the regulatory restriction. Accordingly, the landowner should be awarded the market rate return computed over the period of the temporary taking on the difference between the property's fair market value without the regulatory restriction and its fair market value with the restriction.Wheeler III, 833 F.2d at 271; see also Nemmers, 764 F.2d at 505 (noting that a landowner could be compensated for a temporary taking by getting the fair rental value of the land).
28. These cases represent two slightly different approaches to assessing damages resulting from a government's wrongful restriction or impediment to development. Herrington I focuses on delay. It posits that the landowner could have sold the property for $1.3 million without the encumbrance imposed by the defendant but for only $490,000 with the encumbrance. Under this measure, the loss to the plaintiffs was the delay in obtaining the ultimate profit — the additional $810,000 it could have obtained from the hypothetical sale — which plaintiffs could have invested. In contrast, under Wheeler and Nemmers, the focus is on the inability to use or employ the full economic value the asset during the period of the unlawful restriction. As to damages incurred during the period the property is encumbered by wrongful regulation or restriction, Herrington and Wheeler/ Nemmers provide an alternative measure of damages in a temporary takings case, focusing on the loss of value during the encumbrance.
To the extent there are permanent damages after the restriction is renewed, such as an overall diminution in the value of the property discussed below, that is an additional element of damages.
29. In the instant case, the Court finds that the latter measure of damages is more appropriate. As discussed infra, see ¶¶ 98-108, NP's project did not suffer any significant delay as a result of Condition 13(b). Consequently, Herrington would not provide NP with much relief even though its constitutional rights were violated. Rather, under the circumstances of this case, the damages flowing from the loss of value suffered by NP during the encumbrance of Condition 13(b) is appropriately measured by the Wheeler/ Nemmers analysis.
(3) Fair Return on Diminution in Value
30. Under the Wheeler/ Nemmers analysis, NP is entitled to the fair return on the difference in value ( i.e., the "delta") between the fair market value of the development project without Condition 13(b) and the fair market value of the project encumbered by Condition 13(b) during the period of the temporary taking ( i.e., the period during which the condition encumbered the project). To assess this damage, the Court must first address the start date and end date of the temporary taking.
Although the Court uses the phrase "takings period" and other similar phrases in this opinion, it does so only as a matter of analogy and linguistic convenience. Technically, the constitutional violation here has to do with equal protection, not a taking.
a. Start Date
31. According to NP, the start date of the temporary taking is August 12, 2002, when the City Council upheld the Planning Commission's approval of NP's development permits. See Liability FF ¶¶ 26, 34, 38. However, according to the City, this is not the proper start date because the Court previously found at the liability phase that the City Council was not aware of the problem posed by Condition 13(b) as of August 12, 2002; rather, it only became aware of the problem on or about November 6, 2002. See id. ¶¶ 68(c)(iii), 71.
32. The Court acknowledges its prior finding that the City Council did not have sufficient knowledge as to constitute conscious endorsement or ratification of the joint and severability provision imposed by Condition 13(b) until November 6, 2002. However, the Court also found that, by failing to respond to NP's letter of November 6, 2002 discussing Condition 13(b), a letter received and presumably reviewed by Council members, the City Council ratified staff's action in imposing the condition. See id. ¶ 73 n. 10 ("Having been presented with, at trial, additional evidence regarding the relevant course of events, the Court concludes that the City is liable not only because of the City Council's direct action (or rather inaction) but also because of the City Council's failure to act with respect to the actions of its subordinates."). That ratification was a predicate to municipal liability under § 1983.
33. Ratification, however, does not start the damages date; it merely confers liability. Ratification is the "[c]onfirmation and acceptance of a previous act, thereby making the act valid from the moment it was done." Black's Law Dictionary 1268 (7th ed. 1999) (emphasis added); see also Rest. (2d) of Agency § 82 ("Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.") (emphasis added). Thus, for instance, if a city ratified a wrongful termination of an employee in violation of the First Amendment, damages would run from the date of termination, not the date of ratification. Therefore, when the City Council ratified staff's actions, the City became liable back to the point of wrongdoing — the imposition of Condition 13(b) in granting the permits. The Court thus agrees with NP that the proper start date for the taking (and commencement of the damages period) is August 12, 2002.
b. End Date
34. As the Court stated in its previous order, see Docket No. 311, the end date for the temporary taking is not when Condition 13(b) was conclusively cured. Rather, it is when Condition 13(b) no longer had a discernible effect on the fair market value of the development project — i.e., when a reasonable buyer of the project would have viewed the risk of Condition 13(b) as de minimus. At that point the "delta" is effectively zero.
35. According to the City, the proper end date is June 17, 2003, the day that Mr. Crabtree, the City Planner, sent a letter to Mr. Kalmbach, one of NP's members, regarding Condition 13(b). See Ex. E (letter from M. Crabtree to R. Kalmbach, dated 6/17/03). In the letter, Mr. Crabtree stated that "the inclusion in the CCRs" of the language proposed by NP in its November 6, 2002, letter, "would satisfy the City with respect to Condition No. 13(b) of the Conditions of Approval." Id.; see also Liability FF ¶ 43. In the letter, Mr. Crabtree also stated that, if NP was not satisfied with this interpretation of Condition 13(b), it could file an appeal pursuant to Pacifica Municipal Code § 9-4.3601.
36. According to NP, the appropriate end date is April 26, 2004, the day that the City's amendment of Condition 13(b) — which took place on January 26, 2004 — became final and unappealable by an administrative writ.
37. The Court does not agree with the City. Mr. Crabtree's letter of June 17, 2003, is not the proper end date because a prospective buyer would likely find the letter unsatisfactory for several reasons. First, shortly before the letter was sent to NP, the City filed several declarations with the Court stating that Mr. Crabtree did not have final decisionmaking authority regarding City planning. See, e.g., Ex. 7B (declaration of Mr. Crabtree in support of City's motion for summary judgment, filed on 5/7/03); Ex. 7D (declaration of Joseph Tanner, City Manager, in support of City's motion for summary judgment, filed on 5/7/03). Second, it was not clear that Mr. Crabtree had the authority to bind the City — i.e., to prevent the City from changing its position on Condition 13(b) prior to the approval of the final map. William Abbott, one of the City's experts, testified that it is possible (though probably rare) for a City to reverse a condition of approval approved by staff. Third, there was nothing to prevent Mr. Crabtree from changing his mind. Steve Johnson, another of the City's experts, testified that, even if a developer and staff come to an agreement, there is a risk that staff will change its position and, in his experience as a developer, there have been instances where staff has changed its position.
38. A prospective buyer would also be unlikely to rely on the letter from Mr. Crabtree because of other uncertainties — for example, because Ms. Quick, the City Attorney, did not sign the letter (although she was copied). Condition 13 provided that the CCRs had to be approved "as to form and content" by the City Planner and the City Attorney. Ex. C (letter from M. Crabtree to R. Kalmbach, dated 9/11/02). Furthermore, even though the City Planner and the City Attorney were given the authority to approve the form and content of the CCRs, it is not clear that they had the power to "read out" the joint-and-several-liability requirement expressly imposed by Condition 13(b) as approved by the City Council. Moreover, a third party could intervene and challenge that Mr. Crabtree's decision prior to approval of the final map, as acknowledged by the City's expert Mr. Abbott. Significantly, Mr. Abbott conceded that the letter from Mr. Crabtree would not have satisfied a prospective buyer of the project that the risk posed by Condition 13(b) was de minimis.
39. Finally, there is yet another reason why a prospective buyer would find the letter from Mr. Crabtree unsatisfactory. That reason concerns its timing. Mr. Crabtree sent the letter to Mr. Kalmbach only after the Court expressed concern about the legality of Condition 13(b) during the hearing on the parties' motions for summary judgment. At trial, Kevin Siegel, one of the City's outside counsel in this case, admitted that the letter — which he originally drafted — was intended in part to influence the Court's decision on the pending summary judgment motions. Given the timing of the letter, a prospective buyer could reasonably believe there was a substantial risk that the letter was only a part of litigation strategy and did not reflect the City's true intent.
40. While the Court agrees with NP that June 17, 2003 is not the proper end date, it does not agree with NP that the appropriate end date is April 26, 2004, when the appeal period ran on the City's amendment of Condition 13(b). Again, the Court emphasizes that the end date for the temporary taking is not when the condition was conclusively cured as a procedural matter but rather when a reasonable buyer of the development project would have viewed the risk of the condition as de minimis. On October 23, 2003, the Court determined that the City was liable to NP for violation of its right to equal protection. See Docket No. 264 (findings of fact and conclusions of law, filed on 10/23/03). At this point, it was clear that Condition 13(b) was not legal and thus highly unlikely that the City would or could require NP to satisfy the condition. Arguably, there was still a remaining risk that the City might appeal the Court's liability finding. However, this risk was effectively eliminated within days. On November 10, 2003, the City Council instructed that the condition be read so as not to require joint and several liability. See Ex. F (City Council minutes, dated 11/10/03). Although NP may not have been satisfied with the manner in which the City complied with the Court's liability ruling, it became clear to any reasonable developer at that point that the City was going to capitulate and not enforce Condition 13(b). Any risk from Condition 13(b) was de minimis at that point. The "delta" became zero. Although the City's form of compliance may still have been an issue, that is relevant to the cost of cure, not the end date of the takings (as measured by the "delta"). Accordingly, the Court finds that the proper end date for the temporary taking is November 10, 2003.
It is therefore irrelevant that, in prior and subsequent memoranda to the City Council, outside counsel Michelle Kenyon and Mr. Siegel claimed that the joint-and-several-liability language was "necessary."
c. Diminution in Value
41. Having determined the appropriate start and end dates for the taking, the Court now turns to the difference in value ( i.e., the "delta") between the fair market values of the development project with and without Condition 13(b) during the period of the temporary taking.
i. NP's Position
42. According to NP, at all points during the taking, the development project was worthless while Condition 13(b) was in place. This position is not credible for two reasons.
43. First, in evaluating the value of the project with the condition, a reasonable buyer would consider the possibility that the condition could be cured. If, at some point, the condition likely could be cured, then the project would have at least some value in spite of the condition. NP's position that there must be no risk at all before the project could have any value is not tenable.
44. As an example of NP's extreme position, the Court takes note of Mr. Fromm's testimony that, even after the City modified Condition 13(b) on January 26, 2004 to eliminate completely the joint-and-several-liability language, the development project still had zero value because of the risk of appeal of the City's decision. NP's expert, Jeffrey Costell, provided the same testimony. Mr. Costell also testified — equally implausibly — that he would not have paid any amount of money for the project if it had Condition 13(b), even if the potential profit to be made were $10-20 million. NP thus implies that even if there were a 99 percent chance of removing Condition 13(b) (through litigation or otherwise) and the project would upon such removal be worth millions, no reasonable developer would pay anything for the project so long as Condition 13(b) remained.
45. Second, the Court finds that a reasonable buyer would in fact have concluded that Condition 13(b) likely could be cured. According to NP itself, the condition was patently illegal. Indeed, after its imposition, Mr. Fromm testified that he spoke with a number of law firms and did not find any attorney — or anyone in the business arena for that matter, including the City's experts — who had ever seen such a condition which prevented the project from being financeable. Because, as NP rightly contends, the condition was clearly unprecedented, contrary to California real estate law, and unjustified (and thus found herein to be unconstitutional), a reasonable buyer would see no significant risk that the condition would not be removed or found illegal. Therefore, the Court finds a reasonable buyer would have viewed Condition 13(b) as a nuisance encumbering the project but not one which would ultimately prevent its development.
46. Significantly, NP's own actions demonstrated that, for quite some time, it considered Condition 13(b) as having only a nuisance value. Until the spring of 2003 ( i.e., around the time summary judgment motions were filed), Condition 13(b) was not of special significance to NP. For example, NP did not do much to highlight to the City its concern over Condition 13(b) before the condition was formally imposed on August 12, 2002. Although NP did discuss Condition 13(b) in its letter of July 15, 2002 to the Planning Commission, the discussion was buried in the letter which consisted of twelve pages and addressed eight other conditions in addition to Condition 13(b). See Liability FF ¶ 19. Even more tellingly, at the City Council hearing on August 12, Mr. Fromm made no mention of Condition 13(b) at all in his oral presentation. Even after the City formally imposed Condition 13(b) on August 12, NP did not make much of an effort to highlight its concern over the condition. Although NP did discuss Condition 13(b) in its letter of November 6, 2002, to the City Council, the discussion again was buried in the letter, which consisted of eighteen pages and addressed eleven other conditions in addition to Condition 13(b). See id. ¶ 40. Similarly, NP's letter of November 20, 2002, asked the City if a meeting could be arranged to discuss the conditions of approval to which NP objected in order "to see if any or all of them may be resolved without resort to the courts." Liability Ex. 26 (letter from K. Fromm to M. Kenyon, dated 11/20/02); see also Liability FF ¶ 44. The letter simply discussed the conditions of approval generally; it did nothing to put particular emphasis on Condition 13(b) specifically. See also Ex. 13E (joint case management statement, dated 10/11/02) (simply stating that NP "is requesting that the City modify the approximately ten conditions that plaintiff has objected to," without specific identification of Condition 13(b)). Finally, NP did not promptly challenge Condition 13(b) by writ of administrative mandamus. Indeed, NP did not even raise the issue of Condition 13(b) in this Court until it filed its summary judgment papers on May 8, 2003, nearly nine months after its imposition. See Docket No. 108 (NP's motion for summary judgment, filed on 5/8/03).
47. The Court finds that NP was in no rush to resolve Condition 13(b) because its priorities were elsewhere. Notably, at the August 12, 2002, hearing before the City Council, NP considered the matter regarding the sewer more important than Condition 13(b). That was the sole focus of Mr. Fromm's oral presentation to the City Council. NP did not go back to the City Council to raise Condition 13(b) shortly after the August 12 hearing. Nor did it take any concrete action immediately upon receipt of the actual permits on September 11, 2002. NP's first formal communication with the City about the permits was with NP's letter of November 6, 2002. However, Mr. Fromm testified that this letter was driven by the ninety-day statute of limitations under the Mitigation Fee Act, not by an internal sense of urgency as to Condition 13(b).
48. Because a reasonable buyer would not perceive Condition 13(b) as an insurmountable bar to the project but as a removable encumbrance — and because NP in fact treated Condition 13(b) as such — there is no reason for the Court to treat Condition 13(b) differently in qualitative terms from the Coastal Commission litigation with respect to the effect each had on the fair market value of NP's project. It is inconsistent for NP to argue and concede that the Coastal Commission litigation was simply a nuisance that could be cured (costing less than $300,000 to dispose of) but that Condition 13(b) was not, especially when NP was confident that it would prevail on both litigation matters. In fact, if anything, there arguably was more of a risk associated with the Coastal Commission litigation than with Condition 13(b). The Coastal Commission litigation centered on the issue of whether wetlands were located on the Bowl property — a fact-intensive inquiry. In contrast, Condition 13(b) posed a question that was law-intensive. The condition was clearly unprecedented. If anything, the outcome of the Condition 13(b) dispute was arguably more predictable.
According to NP, it had determined that this was the financial impact of the Coastal Commission litigation even before the agency made settlement overtures in which the Commission indicated it would accept $300,000 to fund a wetlands restoration project in San Mateo County to resolve the dispute. See Ex. 13A (letter from J. Jacobs to J. Pope, dated 1/21/04).
The Court also takes note of NP's inconsistent position in state court proceedings that the Coastal Commission litigation was not just a nuisance but rather made it impossible for NP to move forward with its development project. Mr. Fromm's belated explanation at trial that his statements in state court proceedings about the impact of the Coastal Commission litigation have to be understood in context and that there was a "confluence of events" is not convincing.
49. NP contends still that Condition 13(b) had a devastating effect on the value of its project (making it zero) because one of the City's own experts, Mr. Abbott, testified that he would not have advised a prospective buyer to close escrow until Condition 13(b) was actually remedied. Mr. Abbott did not testify, however, whether he would advise such a buyer to close without the condition being remedied if offered a discount of e.g., several hundred thousand dollars, knowing of the unprecedented nature of the condition. Mr. Abbott simply testified that he would not advise a buyer to close escrow subject "only to a discount of . . . $15,000 for remedying the problem with the CCR's." Tr. at 150. Moreover, another of the City's experts, Mr. Robinson, testified that, in his experience, there are situations where one prospective buyer backs out of a deal because of what it believes are insurmountable problems, only to have another buyer step in to close the deal. Such a scenario is particularly likely here because the failure of the parties to resolve Condition 13(b) is attributable in part to the antagonisms that existed between the City and NP (and Mr. Fromm in particular). Mr. Fromm's confrontational style was not received well by City staff and officials. Indeed, as noted herein, when Mr. Fromm asked Kevin Siegel to arrange a meeting to discuss the disputed conditions, Mr. Siegel told him too many people were mad at Mr. Fromm. An outside developer without the history of antagonism with the City could well have perceived that it would be able to resolve Condition 13(b) more easily than NP. In the final analysis, different buyers may have different assessments of risk and possess different degrees of risk averseness. The issue here is whether, in the entire marketplace, a reasonable buyer could be found who would be willing to purchase the project with Condition 13(b) and if so at what price ( i.e., how much of a discount to reflect the risk). The Court finds a reasonable buyer would have found that the project had substantial value.
50. Finally, the Court notes that, in its closing argument, NP asserted that Condition 13(b) did in fact "kill" its project because it did not own the Bowl property. NP had only an option to buy the property at a specific price within a specific time. According to NP, even if there were a 99 percent chance that the condition could be resolved, any reasonable buyer would have to assess whether the condition could be resolved before the option expired. NP argues no buyer would have done so. However, not only did NP raise this theory for the first time in closing argument weeks after the close of evidence, but it also never presented any evidence about the terms of the option, including its length. NP contends that such information is contained in Exhibit 2, the information circulation on the development project prepared by NP, see Ex. 2 (NP's information circular), but there are several problems with this argument.
51. First, Exhibit 2 was used only to support Mr. Fromm's valuation of the project without Condition 13(b). The terms of the option were not relevant to Mr. Fromm's opinion on value. Second, even if the terms of the option were relevant to Mr. Fromm's opinion on value, the Court admitted Exhibit 2 not for the truth of the matter asserted but only as the basis of information on which an expert could reasonably rely. See Fed.R.Evid. 703 (providing that an expert may base his opinion at trial on inadmissible facts and data of a type reasonably relied upon by experts in his field). "When inadmissible evidence used by an expert is admitted to illustrate and explain the expert's opinion, . . . 'the [otherwise inadmissible] evidence is to be considered solely as a basis for the expert opinion and not as substantive evidence.'" United States v. 0.59 Acres of Land, 109 F.3d 1493, 1496 (9th Cir. 1997) (emphasis added); Boone v. Moore, 980 F.2d 539, 542 (8th Cir. 1992) ("[T]he evidence is not offered, nor admissible, for the fact of the matter therein asserted, but simply to indicate the information and material relied upon by the expert. Unless the particular evidence is otherwise admissible under the Rules of Evidence, it may not come in as substantive evidence."). Third, NP's argument assumes that it would have no ability to extend the option; but apparently NP has been able to do so. NP has never contended that the option has in fact expired even as of this late date. See ¶ 100, infra (noting that NP kept option alive). Finally, NP presented no expert testimony or evidence on the terms of the option. Its evidence at trial was directed at establishing the supposed devastating impact of Condition 13(b) on the project's value irrespective of the timing of any cure relative to the option expiration.
ii. City's Position
52. While the Court rejects NP's position that Condition 13(b) rendered the development project completely worthless, it also rejects the City's position that Condition 13(b) could have been easily and promptly cured at a relatively trivial cost. This position cannot be sustained given the City's inaction and apparent unwillingness to take any action to remedy Condition 13(b) until the issue was discussed in summary judgment motions before the Court. Moreover, given the potentially devastating effect of Condition 13(b) on the development project if the condition were not cured, even if the risk of non-removal were small, it is impossible to assign a zero discount factor advocated by the City. Simply put, a reasonable developer would pay less for a project encumbered with Condition 13(b) — even if there were a virtual certainty that steps could be taken to get rid of it — than for a project without the condition. The fact that significant cure costs and time might be required to remove a condition that would otherwise make the project infeasible would lessen its value to a more than de minimus extent.
53. In this regard the Court does not credit the testimony of the City's expert, Walter Carney. Mr. Carney claimed that Condition 13(b) would not substantially affect the fair market value of the development project because the condition could "in all probability" could be cured. However, when pressed to define what was meant by "in all probability" — i.e., what was the risk factor — Mr. Carney could not provide any quantification. The Court concludes that the value of the project to a reasonable buyer would vary with the degree of risk assessed by the buyer. Mr. Carney's opinion thus omits a critical element that is foundational to any rational assessment of value. Furthermore, Mr. Carney's assumption that Condition 13(b) could be easily cured at minimal cost is without foundation. Mr. Carney assumed wrongly that the City Attorney, Ms. Quick, had the power to unilaterally amend the condition. Not only did the City Attorney not have such legal authority, the Court finds she was not inclined to exercise that authority.
NP thus challenged Mr. Carney's ability to testify as an expert under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). Given the Court's conclusion that Mr. Carney's testimony on this point cannot be credited and thus is given no weight, the objection is moot.
iii. Court's Finding
54. Having rejected the extreme positions of both parties, the Court finds that the proper discount in value due to Condition 13(b) is equivalent to a discount of 10 percent attributable to a litigation encumbrance. The Court finds credible that portion of Mr. Carney's testimony in which he states that appraisers usually apply a 5 to 10 percent discount in the value of property encumbered by litigation. The Court notes this range is consistent with the discount factor ($300,000) NP assessed for the Coastal Commission litigation. This range of 5 to 10 percent is appropriate in the instant case because Condition 13(b) was unprecedented, unnecessary, and unconstitutional. There were alternative mechanisms and language that could have been used to meet the City's concerns ( i.e., to ensure that the City would not have to be responsible for the common areas of the development). It was a removable encumbrance, not a deal killer. However, the Court finds that, within this range of litigation discounts, the upper end — i.e., 10 percent — is appropriate given the potentially disruptive effect of Condition 13(b) on the development project if it were not removed and the failure of the City to respond promptly to NP's objections. NP was forced to litigate the issue.
Whether or not Mr. Carney qualified as an expert for purposes of assessing the ease by which Condition 13(b) could have been amended is separate from his expertise on appraising properties more generally. NP conceded as much during its closing argument.
55. Accordingly, the diminution in value — i.e., the delta — because of Condition 13(b) is 10 percent of fair market value during the takings period. As for the actual value of the development project, the Court credits the testimony of NP's expert Paul Talmage that, without Condition 13(b), the property was worth $8 million on August 12, 2002, and worth $9.13 million on November 10, 2003. See Ex. 1.16 (chart of damage calculation). Thus, on August 12, 2002, Condition 13(b) was responsible for a diminution in value of $800,000 ( i.e., 10 percent of $8 million), and, by November 10, 2003, the diminution in value had increased to $913,000 ( i.e., 10 percent of $9.13 million).
According to Mr. Talmage, the project was actually worth $9.25 million between November 1 and 10, 2003; however, that amount did not reflect the nuisance value of, e.g., the Coastal Commission litigation. Without the nuisance value, the project was worth $9.13 million.
d. Fair Return
56. As explained in the Court's previous order, the measure of damages is not the diminution in value but rather the fair return on the diminution in value. Thus, the Court now turns to the question of what the fair rate of return is in the instant case.
57. In a conventional temporary takings case, where the government essentially appropriates the entity of an asset such as a manufacturing plant or land, fair return is often measured by the profits (from the plant) or rent (from the land) that would have been received by the owner of the property but for the temporary taking. See, e.g., Kimball Laundry Co. v. United States, 338 U.S. 1, 7 (1949) (noting that "the proper measure of compensation is the rental that probably could have been obtained"). In the instant case, however, such a measure is not appropriate because: (1) there was no total taking, only an encumbrance which diminished the value of the project, and (2) NP did not own the land but only option rights on the land together with certain entitlements. Thus, there was nothing for NP to "rent." What was lost was the diminution in value of the project. The best basis for measuring damages in this instance is the loss of use of money, since theoretically, NP could have sold the project during the temporary takings period and thereby suffer a diminution in price; alternatively NP could have in theory borrowed money against the equity or value of the project. In short, the opportunity cost occasioned by Condition 13(b) can be best measured as a loss in the use of money. As noted above, that is why the Wheeler/Nemmers analysis which focuses on the lost return on the diminution in value in is apt. The question is what rate of return the Court should apply.
58. NP argues that the fair rate of return should be about 25-30 percent because, "[o]n average, a minimum annualized internal rate of return of at least 20-25% on capital is required to attract investors in a development project such as the Bowl. . . . As a developer, if NP had had the use of the amount of the diminution in value of its project due to Condition 13(b), it would have invested those funds in a similar development project, and obtained a similar return." Pl.'s Trial Br. at 41. In contrast, the City argues that the fair rate of return should be the rate of interest for 52-week U.S. Treasury bills.
59. In determining the proper rate of return in this case, the Court looks for guidance to case law on prejudgment interest because the purpose of prejudgment interest is to compensate for the loss of use of money. See West Virginia v. United States, 479 U.S. 305, 311 n. 2 (1987) ("Prejudgment interest serves to compensate for the loss of use of money due as damages from the time the claim accrues until judgment is entered, thereby achieving full compensation for the injury those damages are intended to redress.").
60. For prejudgment interest, the Ninth Circuit has stated that "the measure of interest rates prescribed for post-judgment interest in 28 U.S.C. § 1961(a) is also appropriate for fixing the rate for pre-judgment interest in cases such as this, where pre-judgment interest may be awarded, unless the trial judge finds, on substantial evidence, that the equities of the particular case require a different rate." Western Pacific Fisheries, Inc. v. § President Grant, 730 F.2d 1280, 1289 (9th Cir. 1984). In Schneider v. County of San Diego, 285 F.3d 784 (9th Cir. 2002), the Ninth Circuit stated that it had "yet to explicitly adopt the standard set forth in Western Pacific for Section 1983 cases." Id. at 791. The court, however, did not make clear whether it would in fact adopt the standard for the case under consideration because it involved a takings claim and "the measure of prejudgment interest in Section 1983 cases arising out of an unconstitutional taking is controlled by an entirely different line of cases." Id. at 792. For takings cases, "the district court must examine what 'a reasonably prudent person investing funds so as to produce a reasonable return while maintaining safety of principal' would receive. The district court should apply an interest rate based on evidence of the rate that would be generated by investment in a diverse group of securities, including treasury bills." Id. See United States v. 429.59 Acres of Land, 612 F.2d 459, 465 (9th Cir. 1980).
61. The instant case does not literally involve a taking, although the Court has looked to the damages analysis in takings cases for guidance since the claim here is analogous to a takings claim. Although it might be appropriate for the Court to apply the Western Pacific standard to the § 1983 claim here, see Golden State Transit Corp. v. City of Los Angeles, 773 F. Supp. 204, 216 (C.D. Cal. 1991) (applying the Western Pacific standard to a non-takings § 1983 case)), ultimately it makes no difference whether the Court follows Western Pacific or Schneider.
62. Applying the Western Pacific standard, the Court finds that the prejudgment interest in the instant case should not be dictated by 28 U.S.C. § 1961(a), which is keyed to the rate of return on 52-week Treasury bills, because there is "substantial evidence" that "the equities of the . . . case require a different rate." Western Pacific, 730 F.2d at 1289. It would be unfair to award NP only the rate for 52-week Treasury bills — which had a rate of 1.76 percent in August 2002 and a rate of 1.34 in November 2003, see Def.'s Req. for Judicial Notice, Ex. E — given that NP is a commercial investor that has historically been willing to take on some risk and which has, according to the evidence at trial, obtained substantially higher yields on its investments. Moreover, the City had no justification for imposing Condition 13(b)'s joint and severability language and could have resolved this dispute more quickly by amending the Condition. Under the circumstances, it would not be equitable to apply the 52-week Treasury bill rate which hovered near historic lows during the period in question.
63. However, the Court does not accept NP's contention that the Court should apply a return of 25-30 percent. NP's expert, Mr. Costell, testified that a developer of projects similar to the Bowl would expect to get at least 25-30 percent before it would be willing to take on the project. Mr. Fromm also so testified. Even assuming such a rate of return were not speculative, however, it is not the proper measure here because that rate reflects a high degree of risk. Mr. Fromm acknowledged that investment in a project like NP's ( i.e., raw land with entitlements) is a high-risk enterprise — sometimes an investor will not make anything on a project, and on another project an investor could get a rate of return of 300 percent. In the instant case, the Court is awarding return on money retrospectively by judgment where there is absolutely no risk.
64. There are other problems with NP's argument as well. NP argues that the interest rate should be 25-30 percent because it would have invested in a development deal similar to the Bowl project and expected such a return. However, there is no credible evidence that NP would have chosen to invest all of the money it earned from the Bowl project in another risky venture — i.e., without putting some of the money in a safer investment. Even if NP had thrown caution to the wind, there is no guarantee that it would have actually gotten a return of 25-30 percent; in other words, NP's claim that it would have received such a return is speculative.
65. Furthermore, a rate of 25-30 percent, as requested by NP, is excessive because it is based on an assumption that NP could have immediately invested the lost value in another comparable land development deal. However, Mr. Kalmbach testified that, in his nearly fifteen years of partnership with Mr. Fromm, they have worked on only three land development deals, including the Bowl property and another project which is not yet completed. Even if the Court were to assume that NP or its principals had other high-yield investment opportunities, such as buying built condominium projects in bulk and selling units individually, there is lag time between investments, during which time capital is "parked" in liquid investments that have much lower yields. While Mr. Kalmbach and Mr. Fromm have engaged in other projects, Mr. Kalmbach admitted that such projects are hard to find and that there is intense competition over the projects. It is telling that, although NP claims that there are such projects in Southern California and elsewhere (between Mr. Kalmbach and Mr. Fromm, they are presented with over twenty deals a year), NP has not taken any substantial steps to sell the Bowl development project and reinvest in such projects, even after May 2004 when Condition 13(b) was removed and NP received offers on the project. The Court therefore rejects NP's argument that it should apply a 25-30 percent rate of return.
66. Given there are substantial equitable reasons not to apply the interest rate prescribed by 28 U.S.C. § 1961(a), the Court has discretion to fix a fair rate. Whether under the exercise of discretion under § 1961(a) or application of the standard under § 1993 in takings cases, the Court finds that Schneider provides the appropriate framework. Under Schneider, the Court must determine what a "reasonably prudent person" to produce a "reasonable return while maintaining safety of principal" would do. The Court finds that a "reasonably prudent person" would not have invested in the kinds of high-risk, high-yield projects claimed by NP. Rather, returns on investments that can safely preserve principal are appropriate. In this regard, NP's expert, Mr. Talmage, testified that the rate of return for institutional grade real estate is about 10-12 percent. The Court finds that, based on this testimony, a fair rate of return for NP's loss of project value is 12 percent. This rate is appropriate for several reasons. Investments in institutional grade real properties are more aggressive than investments in Treasury bills and better reflect, as a general matter, the field in which NP operates (real estate). At the same time, they are safer investments than the high-risk venture of investing in and developing raw land. The term "reasonably prudent investor" would encompass institutional investors such as banks, insurance companies, and other institutions investing in real estate. Hence, institutional grade real estate provides the appropriate measure under Schneider in this case. The Court notes this rate of return 12 percent is not inconsistent with what other courts have awarded in temporary takings cases. See, e.g., Nemmers, 764 F.2d at 505 (concluding that "the proper method for calculating the damages in this [temporary takings] case is to compute the return over three and one-half years at an interest rate of 15% on the difference between the property's fair market value when zoned L-1 and its fair market value when zoned R-3"); Wheeler IV, 896 F.2d at 1352 (taking note of expert testimony that market rate of return was 9.77 percent).
e. Summary
67. For the foregoing reasons, the Court finds that the proper rate of return in the instant case is 12 percent, which means that per month the rate of return was 1 percent ( i.e., 12 percent divided by 12 months). The Court has already credited the testimony of NP's expert, Mr. Talmage, that, without Condition 13(b), the property was worth $8 million on August 12, 2002, and worth $9.13 million on November 10, 2003. The Court also credits Mr. Talmage's monthly valuation of the property in between this period. See, Ex. 1.16 (chart of damage calculation). Thus, the total damages for the fair rate of return on the difference in value during the takings period broken down by month is as follows: Date Value of Diminution of Fair Rate of Damages Property 10 Percent Return TOTAL $124,113
The fraction 12/31 represents 12 days out of the 31-day month of August.
68. The City argues NP is not entitled to the full measure of damages because of NP's failure to mitigate damages. According to the City, even if the temporary taking extended from August 12, 2002, to November 10, 2003, NP failed to mitigate its damages during this period. In other words, NP could and should have done certain things to eliminate Condition 13(b) earlier than November 10, 2003. The City has the burden of proving the affirmative defense of mitigation. See Meyers v. City of Cincinnati, 14 F.3d 1115, 1119 (6th Cir. 1994) (stating that, in a § 1983 case, "once the plaintiff has presented evidence of damages, the defendant has the burden of establishing a failure to properly mitigate damages"). If it meets that burden, damages will but cut off accordingly.
69. NP has identified the following steps that it took to mitigate its damages after August 12, 2002 and before November 10, 2003:
(1) On or about November 6, 2002, NP sent an eighteen-page letter to Lee Diaz of the Planning Department and to the City Clerk for distribution to the City Council and Ms. Quick, the City Attorney. Michelle Kenyon of the McDonough firm, outside litigation counsel for the City, was copied. Attached to the letter was the September 11, 2002, letter from Mr. Crabtree. In the letter, NP discussed in part its objections to twelve of the conditions of approval imposed by the City Council, including Condition 13(b). See Liability FF ¶ 40.
(2) On or about November 20, 2002, NP sent a letter to outside litigation counsel for the City, Ms. Kenyon of the McDonough firm, asking if a meeting could be arranged to discuss the conditions of approval to which NP objected in order "to see if any or all of them may be resolved without resort to the courts." Liability Ex. 26 (letter from K. Fromm to M. Kenyon, dated 11/20/02). Copies of the letter were sent to the City Attorney, all five Council members, Mr. Diaz, and the City Clerk. See Liability FF ¶ 44.
(3) At various times, NP also orally communicated with the City (through Ms. Kenyon or Kevin Siegel of the McDonough firm, outside litigation counsel for the City) about setting up a meeting to see if the disputes over the conditions of approval could be resolved. For example, Mr. Fromm testified at the liability phase that, after one of the depositions, he asked Mr. Siegel if at least some of the conditions could be worked out. Mr. Siegel responded that too many people at the City were unhappy with Mr. Fromm. The City did not dispute this testimony of Mr. Fromm. See id. ¶ 46.
70. In turn, the City argues that NP could and should have mitigated its damages by doing one or more of the following during the period of temporary taking:
(1) Submit draft CCRs to the City, including NP's proposed language to use in place of Condition 13(b).
(2) Make a formal application to amend Condition 13(b).
(3) File an administrative writ of mandamus challenging the City's approval of Condition 13(b).
(4) Appeal Mr. Crabtree's letter of June 17, 2003, in which he stated that Condition 13(b) would be interpreted consisted with what NP wanted in its letter of November 6, 2002.
71. For the reasons stated below, in each instance, the Court finds that the City has failed to meet its burden of showing a failure to mitigate by NP.
a. Submit Draft CCRs
72. The City contends that NP should have submitted draft CCRs to the City, including NP's proposed language for Condition 13(b). According to the City, its outside counsel Ms. Kenyon specifically suggested to Mr. Fromm that NP do just that. Ms. Kenyon testified that she discussed this proposal with Mr. Fromm at or about the time NP was asking the state court in the Coastal Commission litigation to toll the expiration of its permits. Ms. Quick testified Mr. Fromm assented to the request. Mr. Fromm vigorously denies these versions of the events. The Court is not persuaded that the suggestion was made to Mr. Fromm. In addition to the Court's assessment of the conflicting testimony at trial, it reaches this conclusion for several reasons.
73. First, there was no written confirmation from either side about this proposal to remedy Condition 13(b). Had there been such a proposal, it would have been out of character for Mr. Fromm not to memorialize the proposal in writing given his tendency to flood the City with correspondence as demonstrated by the record herein.
74. Second, if the proposal had been made prior to NP's letter of November 6, 2002, then it makes no sense that NP would have said nothing about the proposal in its November 6 letter. If the proposal had been made after the November 6 letter, it is unlikely that Mr. Fromm would have assented to the proposal after expressing such strong opposition to Condition 13(b).
75. In any event, even if Ms. Kenyon had suggested to Mr. Fromm that NP submit draft CCRs, the failure of NP to do so did not constitute a failure to mitigate its damages. The practice in the industry is to submit CCRs at the end of the process, well after approval of the tentative map and often just before final map approval. Also, NP has demonstrated that it was in no position to submit a complete set of CCRs to the City so early in the process because many other issues had to be resolved first ( e.g., other conditions such as the tot lot, the layout of common areas, the phasing of construction). Simply put, the alleged suggestion was not practicable and would not have been effective.
76. The Court acknowledges the testimony by the City's expert, Mr. Abbott, that NP could have submitted just a portion of the CCRs to the City Attorney and/or City Planner for approval — i.e., those relating to Condition 13(b) only as opposed to a complete set of CCRs. However, there is no evidence that anyone representing the City made that specific suggestion to NP. Even if someone had, it is hard to see how the approval of the City Attorney and/or City Planner would have had any legal effect different from the later "approval" given by Mr. Crabtree in his letter of June 17, 2003. See ¶¶ 37-39, supra (noting that staff was not legally bound to a preliminary approval and that staff could subsequently change its mind). As found above, such an approval did not effectively cure Condition 13(b).
77. Furthermore, even if NP should have submitted just a portion of the CCRs, the Court finds that such action would have been futile. As noted above, NP had pointed out in its letter of November 6, 2002, the problem with Condition 13(b), but the City did not respond to that letter. In addition, NP made other overtures to the City, trying to see if the disputes regarding the various conditions of approval could be resolved, see Liability FF ¶ 46, but the City did not respond. The Court also notes that, in a case management conference statement filed in October 2002, NP also pointed out that it was objecting to ten conditions of approval and wanted the City to modify them. See Ex. 13E (joint case management conference statement, dated 10/11/02). The City again failed to respond.
78. Given the history of nonresponsiveness by the City, the Court does not credit the testimony of the City's expert, Mr. Abbott — i.e., that Condition 13(b) could have been cured easily through submission of the CCRs and quick discussions with the City Attorney and/or City Planner.
At trial, Mr. Abbott admitted that he had not met with either Ms. Quick or Mr. Crabtree in preparing his expert report.
b. Make a Formal Application to Amend Condition 13(b)
79. The City contends next that NP should have mitigated its damages by making a formal application to amend Condition 13(b). However, as Ms. Kenyon, outside counsel for the City, admitted during her trial testimony, this was not an advisable action because it would have opened up NP's development project for re-review — i.e., to a whole new public hearing with the potential for an appeal of any approval of the project by any one of the many citizens who opposed the project.
80. As to whether a "ministerial" amendment could have been sought by NP without opening up the process anew — an issue disputed by the parties — there is nothing to indicate that, during the period of the temporary taking, the City considered Condition 13(b) was a mere mistake or oversight addressable by a ministerial amendment. Certainly, the City never made such a claim in response to NP's letter of November 6, 2002 or its other overtures. Nor did the City make such an assertion in its opposition to NP's motion for summary judgment regarding Condition 13(b) or even during the liability phase of the trial. It was only after the liability phase of the trial and the rulings made by this Court on liability that the City indicated that Condition 13(b) was not necessary and perhaps inserted as a result of oversight. Accordingly, the Court finds that any application for a "ministerial" amendment prior to the Court's ruling on liability would have been futile. Moreover, the City contends there is no such procedure for unintentionally amending a permit without opening the process to appeal. See ¶ 119 below.
c. File an Administrate Writ of Mandamus
81. The City argues next that NP should have mitigated its damages by filing an administrative writ of mandamus within 90 days of the City's approval of Condition 13(b) on August 12, 2002. The City points out that NP belatedly filed such a writ in state court after the statute of limitations had already run. See Liability Ex. O (NP's administrative writ, filed on 4/4/03); see also id. Ex. P (order of San Mateo Superior Court in Case No. 429148, filed on 6/20/03) (sustaining City's demurrer to writ in part because the 90-day limitations period had already expired).
82. The Court finds that if this constituted a failure to mitigate, it was inconsequential. There is no evidence that if NP had timely filed an administrative writ, it would have resulted in a faster victory for NP. For example, if NP had timely filed a writ on or before November 10, 2002, there is no indication that NP would have gotten a quicker decision in state court than in this Court, in which a liability trial was held in July 2003 and decision rendered in October 2003. The City points out that, under California Government Code § 66499.37, when there is a challenge to a decision of an agency or legislative body with respect to a subdivision or condition attached thereto, "such [a] proceeding shall take precedence over all matters of the calendar of the court except criminal, probate, eminent domain and forcible entry and unlawful detainer proceedings." Cal. Gov't Code § 66499.37. However, this is not sufficient proof that NP would have gotten a quicker decision in state court.
d. Appeal Mr. Crabtree's June 17, 2003, Letter
83. Finally, the City asserts that NP should have mitigated its damages by appealing Mr. Crabtree's letter of June 17, 2003, which stated that "the inclusion in the CCRs" of the language proposed by NP in its November 6, 2002, letter, "would satisfy the City with respect to Condition No. 13(b) of the Conditions of Approval." Ex. E (letter from M. Crabtree to R. Kalmbach, dated 6/17/03). The City points out that in the letter Mr. Crabtree stated that, "[i]f you are not satisfied with this interpretation of Condition 13(b), you may appeal the foregoing interpretation pursuant to Section 9-4.3601 et seq. of the Pacifica Municipal Code." Id.
84. The Court does not find a failure to mitigate here because, as is evident from the face of the letter, there was nothing for NP to appeal. The letter was not an adverse decision to NP. Nor, for the reasons stated above, was it reasonable for NP to rely on the letter.
e. Other
85. The Court takes note of the City's argument that NP should also have mitigated its damages by, e.g., relying on the City Council's November 10, 2003, instruction to staff regarding interpretation of Condition 13(b) and relying on the City's "modification" of Condition 13(b) on January 26, 2004. However, these acts took place after the end date (as found by this Court) for the temporary taking and therefore are moot in the context of failure to mitigate. Similarly, while an argument could be made that NP could have mitigated its damages by seeking injunctive relief from the Court after the Court found on October 23, 2003 that the City was liable for violating NP's right to equal protection, it is unlikely that such relief could have been secured before November 10, 2003, the end date of the temporary taking found herein.
86. If anything, the Court may consider NP's alleged failures to act after November 10, 2003, in the context of the cost of curing Condition 13(b) and reasonable attorney's fees under § 1988.
f. Summary
87. For the foregoing reasons, the Court finds that none of the mitigation measures identified by the City were reasonable or effective. The damage calculation above on the fair return on the diminution in value is consequently not affected.
(5) Cost of Cure
88. As the Court stated in its previous order, see Docket No. 311 (order filed on 4/16/04), given NP's general duty to mitigate its damages, fairness dictates that NP be able to recover cure costs. Cf. Rest. (2d) Torts § 919 ("One who has already suffered injury by the tort of another is entitled to recover for expenditures reasonably made or harm suffered in a reasonable effort to avert further harm.").
a. Cost of Attorney's Fees for the Instant Litigation
89. Arguably, one of the cure costs is the cost of NP's attorney's fees for the instant litigation, which was pursued in the effort to cure Condition 13(b). The Court, however, shall not consider these attorney's fees as an element of damages because, generally, fees are not recoverable as part of damages. See 10-54 Moore's Fed. Prac. — Civ. § 54.170 ("The so-called 'American Rule' on attorney's fees generally prohibits the recovery of any attorney's fees in federal court."). In addition, recovery of attorney's fees for the instant litigation would present a risk of double recovery because the fee shifting provision of 42 U.S.C. § 1988 already affords an opportunity for recovering litigation fees in this action. Indeed, NP conceded at trial that attorney's fees for the instant litigation are more appropriately sought through a § 1988 fee petition.
90. The Court, however, makes the following note to guide the parties for that prospective fee petition. Although the Court has determined that the end date for the temporary taking is November 10, 2003, attorney's fees thereafter incurred by NP in obtaining satisfactory administrative completion of the cure arguably may be recovered. In that regard, issues of what constituted a complete administrative cure and whether NP fulfilled its duty to mitigate in obtaining that cure may inform the reasonableness of any fee assessed under § 1988. On the other hand, fees awarded under § 1988 must be reasonable in light of the factors that have been articulated by the courts, including results obtained.
b. Cost of Clearing and Grubbing
91. One of the cure costs sought by NP is the cost of clearing and grubbing the Bowl property (approximately $113,000). According to Mr. Kalmbach, to start improvement plans, NP had to clear and grub because its engineers needed a base point to calculate grading. The Court finds that this is not a proper cure cost because NP would have had to clear and grub the property with or without Condition 13(b). To the extent the effort of clearing and grubbing was wasted or duplicative (in whole or in part), that is due to a delay which, as discussed below, is not attributable to Condition 13(b). Moreover, the Court notes that the actual clearing and grubbing appears to have taken place on or after November 10, 2003, after the state court's denial of the Coastal Commission's request for a TRO. By that time it was evident that the City Council had instructed staff to interpret Condition 13(b) so as not to require joint and several liability, further underscoring the lack of any causal relationship between any wasted effort in clearing and grubbing and the City's imposition of Condition 13(b).
c. Cost of Attorney's Fees to Defend Permits Against Coastal Commission Attack
92. Finally, NP claims as part of its cure costs the legal fees it incurred because the Coastal Commission was attacking the City's issuance of the permits. These fees, totaling $923,390, are all related to the Coastal Commission litigation in state court. The Court finds that these fees are not a proper cure cost because they are not causally related to Condition 13(b). The City cannot be held accountable for the Coastal Commission's actions.
93. NP contends that the City can be held accountable because it "colluded" with the Coastal Commission to prevent NP's project from going forward. However the City's conduct may be characterized, the Court finds there is no factual basis for ascribing these fees to the City's conduct in relation to the case at bar.
94. First, there is no evidence that the Coastal Commission, when it first asserted jurisdiction over NP's coastal development permit on August 23, 2002, did so at the City's prompting. Indeed, the City found the permits were not appealable and thus was at odds with the Coastal Commission. Hence, the City had nothing to do with the chain of events that started with the assertion of jurisdiction by the Coastal Commission. The fact that the City later stated that the permits were "suspended" as a result of the Coastal Commission's actions is inconsequential. This was simply a characterization of the effect of the Coastal Commission's actions, not the City's actions. See, e.g., Ex. 79 (letter from C. Quick to K. Fromm, dated 2/26/04; stating that "[t]he permits are not yet effective because of pending Coastal Commission litigation and related administrative proceedings which are unrelated to any actions by the City"). That characterization had no effect on the course of the Coastal Commission litigation that has stretched out for years and continues today.
95. Second, after NP sued the Coastal Commission in state court because of its assertion of jurisdiction, there is some evidence that the City and the Coastal Commission communicated with one another and shared strategies regarding the state court litigation. However, these actions are not causally related to Condition 13(b). They concern the merits of the Coastal Commission litigation. Even if the City's spirit of cooperativeness with the Coastal Commission were motivated by a desire to either stop the project or minimize its damages exposure in this suit, there is no evidence that these communications prolonged the Coastal Commission litigation and exacerbated NP's fees therein. Moreover, the City and the Coastal Commission actually disagreed on certain matters; one document presented at trial indicates that the Coastal Commission contemplated taking action against the City. See Ex. 116 (under seal). The Court finds the City took no action vis-a-vis the Commission which resulted in increase expenses incurred by NP in its manifold litigation with the Coastal Commission.
96. NP also faults the City for its refusal to grant a "litigation stay" — i.e., to toll the running of the permits until after the litigation with the Coastal Commission was over. The City did not grant such a stay until September 2003. See Ex. 63C (Planning Commission minutes, dated 9/2/03). Prior to that, the City extended the permits for a fixed period. The problem, once again, is that there is no causal relationship with Condition 13(b). That is, while the City may have resisted giving a litigation stay keyed to the Coastal Commission litigation, that dispute concerned the Coastal Commission litigation, and not Condition 13(b). To the extent NP contends that the City's resistance was motivated by a desire to enforce Condition 13(b), no such factual showing has been made by NP. This, of course, does not address whether NP may be entitled to the costs it expended to obtain a litigation stay — or to extend the lifetime of the permits — with respect to this litigation. However, these expenses are more appropriately sought, if at all, as part of an attorney fee recovery under § 1988.
d. Summary
97. Accordingly, the Court finds that the cure costs identified by NP — other than the costs incurred in connection with this litigation, potentially recoverable under § 1988 — are not recoverable in this action.
(6) Delay Costs
98. As the Court stated in its previous order, see Docket No. 311 (order filed on 4/16/04), NP may also be entitled to project delay costs not already accounted for in the lost use value ( i.e., the fair return on the "delta" in fair market value) during the period the project was materially encumbered by Condition 13(b).
a. Overhead and Administrative Costs
99. NP asks as a part of its costs to be recovered herein the overhead and administrative costs it incurred for the period of delay resulting from the temporary taking (approximately $284,722). However, as explained below, any delay is not attributable to Condition 13(b). Moreover, Mr. Fromm simply testified about budgeted overhead and administrative costs, which may or may not reflect the actual costs incurred. There is no credible admissible evidence as to costs actually incurred.
b. Cost of Payments to Armamino Properties
100. As an additional delay cost, NP seeks the cost of the payments it made to Armamino Properties from July 22, 2002, to November 15, 2002 (totaling $48,900). See Ex. 31. These payments were made periodically by NP to keep its option to purchase the Bowl property alive. Until November 15, 2002, the payments were not applicable to the purchase price. After November 15, 2002, NP met with Armamino Properties and restructured their deal so that the payments would be applicable to the purchase price.
Although Exhibit 31 does not appear to have been formally admitted into evidence, Mr. Kalmbach looked at Exhibit 31 during trial in testifying about the payments made to Armamino Properties — i.e., that NP paid roughly $12,000 per month until November 15, 2002. At closing, NP represented that the sum totaled $48,900. In fairness, the Court considers Exhibit 31 for the limited purpose of determining how NP arrived at that sum of $48,900.
101. The Court finds that the cost of the payments made to Armamino Properties is not a proper delay cost. First, the cost of the payment made on July 22, 2002, cannot be attributed to the City because the City did not even approve Condition 13(b) until August 12, 2002. As for the payments starting August 23, 2002 up until November, 2002 (the point at which payments were credited to the purchase price), as discussed below, any delay is not attributable to Condition 13(b).
c. Delay from Coastal Commission Litigation
102. Shortly after the City Council approved the permits with Condition 13(b) on August 12, 2002, and before the permits actually issued on September 11, 2002, see Ex. C (letter from M. Crabtree to R. Kalmbach, dated 9/11/02), the Coastal Commission asserted jurisdiction over the coastal development permit. See Ex. A (letter from P. Imhof to M. Crabtree, dated 8/23/02). Thus, virtually from the outset of the damages period to the end date, NP's development project was held up as a result of the Coastal Commission's actions which were entirely independent of the City's actions with respect to Condition 13(b). The Coastal Commission's actions were a superseding cause of delay. See Rest. (2d) Torts § 442 (listing factors to consider in determining whether an intervening force is a superseding cause, including "the fact that the operation of the intervening force is due to a third person's act or to his failure to act" and "the fact that the intervening force is operating independently of any situation created by the actor's negligence, or, on the other hand, is or is not a normal result of such a situation"); Back v. Hastings on Hudson Union Free Sch. Dist., 365 F.3d 107, 126 (2d Cir. 2004) (stating that "'in cases brought under § 1983 a superseding cause, as traditionally understood in common law tort doctrine, will relieve a defendant of liability'"). As noted above, the City was not responsible legally or factually for the assertion of jurisdiction by the Coastal Commission and the delay that ensued as a result thereof.
103. The Coastal Commission's actions, and the delay caused thereby, cannot be charged to the City because the City initially opposed the Coastal Commission's position, finding that there were no wetlands on or within one hundred feet of the project site and hence determining that there was no appeal right to the Coastal Commission. See Ex. B (letter from C. Quick to P. Imhof, dated 9/11/02). There is no evidence that the City instituted or instigated the Coastal Commission to assert appellate jurisdiction. Although the City subsequently stated that the permits were "suspended," as noted above, this was simply a characterization of the legal effect of the Coastal Commission's actions on the permits. See, e.g., Ex. 79 (letter from C. Quick to K. Fromm, dated 2/26/04; stating that "[t]he permits are not yet effective because of pending Coastal Commission litigation and related administrative proceedings which are unrelated to any actions by the City").
104. As noted above, the City's characterization of the permits' legal status did not have a material effect on the delay. During the entirety of takings period, the Coastal Commission's actions were repeatedly challenged by NP. For example, as late as October 30, 2003, NP was pursuing an appeal of the San Mateo Superior Court's decision in Case No. 426268. See Ex. 16 (NP's appellate brief, dated 10/31/03); see also Liability Ex. R (order of San Mateo Superior Court in Case No. 426268, filed on 11/19/02). Those challenges and the proceedings which have ensued were not affected by the City's actions. In particular, the City's characterization of the permits' legal status had no effect on the timing of the judicial resolution of the Coastal Commission litigation.
105. It should be noted that even well after Condition 13(b) was cured, the Coastal Commission litigation was not and has not been resolved. In January 2005, NP filed a petition for review with the California Supreme Court regarding one of the many pieces of Coastal Commission litigation, Case No. 426268. See Ex. 128 (NP's petition for review, dated 1/31/05). At trial, Mr. Fromm conceded that he has been hesitant to resolve the Coastal Commission proceedings because the tolling of the running of the permits is keyed to the resolution of the Coastal Commission litigation. Concluding the Coastal Commission litigation would lead to termination of the tolling, NP has opted not to take this risk. Thus, the continuation of the Coastal Commission litigation has not been caused by the City's imposition of Condition 13(b). The above facts demonstrate that the dispute between the Coastal Commission and NP had and continues to have a life of its own, independent of the instant litigation.
d. Delay from Other Conditions of Approval
106. The Coastal Commission's actions were not the only superseding cause with respect to delay. During the pendency of the damages period for Condition 13(b), there were other conditions of approval that remained unresolved, including a dispute over Edgemar Road ( i.e., whether or not the City should have responsibility of maintenance of the road). The Edgemar Road dispute has held up NP's project inasmuch as the CCRs and determination of homeowner's association responsibility and dues cannot be fixed until that issue is resolved. That dispute went to trial in state court (San Mateo Superior Court Case No. 419575), and, after a decision was rendered in favor of NP (a liability determination was made in January 2003 and a damages determination was made thereafter), the City appealed. That appeal remains pending before the state appellate court.
107. For the reasons advanced by NP, other disputes over conditions of the permits may also make the drafting, completion, and approval of the CCRs difficult until resolved. For example, there are other conditions of approval that are the subject of a separate lawsuit before Judge Illston of this District. See North Pacifica LLC v. City of Pacifica, Case No. C-03-4108 SI (N.D. Cal.). While NP now claims that the imposition of these conditions has not had a large financial impact — Mr. Kalmbach testified that, other than one condition regarding a sewer, less than $500,000 was at stake — it is not clear which, if any, of the conditions remain unresolved. Mr. Fromm testified that only some of the conditions have been resolved; Mr. Kalmbach testified that he did not know whether all the conditions have been resolved. This further complicates the question of causation which NP has failed to prove herein.
e. Summary
108. In sum, the Court finds that NP has failed to prove the project was delayed due to Condition 13(b), rather than other barriers such as the Coastal Commission litigation. Accordingly, absent satisfactory proof of causation, NP is not entitled to damages resulting from delay.
(7) Permanent Damages
109. Finally, NP claims that it has suffered permanent damages because (1) litigation has tainted the project; (2) the cost of insurance increased during the pendency of the Condition 13(b) damages period; and (3) the City amended Condition 13(b) in January 26, 2004, which opened up the appeals period and gave the Coastal Commission another basis for asserting jurisdiction.
a. Litigation Taint
110. NP argues there are permanent damages even after the end of the temporary takings because of a "litigation taint." NP points out that one of the City's experts, Mr. Carney, testified that the value of a project could be discounted by as much as $900,000 because of the existence of litigation. When Mr. Carney testified that the value of the project on January 26, 2004, was $7.9 million, that took into account the discount of approximately $900,000; without the existence of litigation, the project would be worth on January 26 an additional $900,000.
111. The Court does not find that NP is entitled to $900,000 as permanent damages. First, nothing in Mr. Carney's testimony suggests that the existence of litigation caused a permanent discount in project value. Indeed, as found above, the "taint" of Condition 13(b) was removed on November 10, 2003. Second, Mr. Carney's testimony at trial did not make clear whether the discount of $900,000 was attributable to the existence of litigation regarding Condition 13(b) or to the existence of litigation generally; in other words, NP has not demonstrated a specific causal relationship to Condition 13(b). Finally, and most importantly, the Court has already accounted for the taint caused by Condition 13(b), including its effect on the fair market value of the development project during the damages period. As found above, it diminished the value of the project by 10 percent, until the end of the damages phase. Once Condition 13(b) was effectively cured ( i.e., "delta" brought to zero), its taint or effect on the project's market value dissipated. There is no basis for assessing permanent damages in this regard.
b. Increase in Cost of Insurance
112. NP argues next that it suffered permanent damages because, during the takings period, the cost of insurance increased by approximately $2 million ($1 million in increase premium rates plus $1 million in diminution of coverage given industry changes after the project was approved in 2002). There are two problems with this argument.
113. First, as found above, there is no causal relationship between Condition 13(b) and any delay in the project due to supervening factors. Thus, the Court finds that the increase in insurance costs was due if at all to delay not attributable to Condition 13(b).
114. Second, although cost of insurance increased during the pendency of this dispute, so did the overall value of the project, notwithstanding the increased cost. The net value of the project increased. Permanent damages are intended to make the plaintiff whole and put it in the position it would have been had the wrongdoing not occurred. See Farrar v. Hobby, 506 U.S. 103, 112 (1992) ("Doubtless 'the basic purpose of a § 1983 damages award should be to compensate persons for injuries caused by the deprivation of constitutional rights.'"); Kendrick v. Jefferson County Bd. of Educ., 13 F.3d 1510, 1514 (11th Cir. 1994) ("The purpose of compensatory damages in a § 1983 case . . . is to make the plaintiff whole for the loss inflicted upon her by the defendant, not to make her more than whole."). There is no basis for awarding NP permanent damages. The value of the project increased more than the cost of insurance. If net value (even after taking insurance costs into account) increased rather than decreased, there is no actual loss to plaintiff. Cf. Kimball Laundry, 338 U.S. at 7 (underscoring that the goal is to compensate the party injured by the temporary taking; "if the difference between the market value of the fee on the date of the taking and that on the date of return were taken to be the measure, there might frequently be situations in which the owner would receive no compensation whatever because the market value of the property had not decreased" during the takings period).
115. Prince George's County v. Blumberg, 44 Md. App. 79 (1979), rev'd in part on other grounds, 288 Md. 275 (1980), is instructive. There, the plaintiffs started construction in reliance on permits issued by the county and sanitary commission, but the county and sanitary commission revoked the permits and refused to reissue them. Part of the damages sought by the plaintiffs was $1.5 million which represented the increased cost of capital necessary to complete the construction. See id. at 114-15. The court refused to award the increased cost as part of damages because the plaintiff suffered no net loss in profits. The court stated
it is not an appropriate element of damage in this case because it is inconsistent with a more basic finding by the court. The court concluded that the Blumbergs would recoup the extra costs of construction through higher sales and rental prices, and would, in fact, ultimately realize the profit they reasonably could have anticipated. That is why no damages were allowed for loss of profits. We fail to see, however, how the additional cost of capital needed to defray the cost of construction is anything other than part of the overall enhanced cost of the project itself that also can be recouped. If there was sufficient evidence to show that, for whatever reason, this increment of the overall extra could not be recouped, there would then be an element of lost profit that could be awarded; but, in the absence of such evidence, it is, we think, inappropriate to award damages specially for the higher cost of capital.Id. In the case at bar, NP, at the conclusion of the cure period, could have "recouped" the added insurance cost by the increase in value of the project which exceeded the increase in insurance cost.
116. Certainly, if net market value after the cure of Condition 13(b) had decreased, NP would be seeking that element of loss as permanent damages. By ignoring the windfall in appreciation it experienced as a result of the delay, NP is essentially advocating a "heads I win, tails you lose" approach to remedies.
c. City's Amendment of Condition 13(b)
117. Finally, NP asserts that the manner in which the City amended Condition 13(b) on January 26, 2004 damaged the fair market value of the project because it opened up the appeals period and gave the Coastal Commission another basis for asserting jurisdiction. NP claims the City should have amended Condition 13(b) "ministerially." According to NP, the City's failure to do so increased the nuisance value of the Coastal Commission litigation by $225,000.
118. However, if, as NP contends, the Coastal Commission litigation was patently frivolous, extending the time for additional appeal had no effect on the merits and thus upon its nuisance value. In any event, NP produced no evidence that the settlement demands of the Coastal Commission — the best indicator of the nuisance value of the Coastal Commission litigation since that it the amount of money it would take to eliminate the Coastal Commission "encumbrance" — increased as a result of the City Council's resolution of January 26, 2004.
119. Furthermore, NP has not shown that Condition 13(b) could have been amended by a "ministerial" act of the City Council. Ms. Kenyon testified credibly that Brown Act precluded such a procedure because it would prevent citizen appeal of City Council action. NP's witnesses cited no legal authority to the contrary. Mr. Costell, who opined to the contrary, cited no legal authority establishing a legal distinction between a "modification" and "amendment" of an issued permit. Nor did he cite any authority distinguishing between a "discretionary" and a "nondiscretionary" amendment upon which his opinion was based.
120. Ultimately, if NP wanted to avoid formal action by the City Council which could have opened an appeal to the Coastal Commission, NP could have moved this Court for an injunction. At trial, Mr. Fromm was not able to give any good reason why NP failed to move for an injunction. Moreover, the City Council ultimately took the action it did on January 26, 2004, because NP was dissatisfied with the City Council's instruction to staff on November 10, 2003, regarding interpretation of Condition 13(b). The City did what NP asked.
d. Summary
121. Accordingly, NP has failed to prove it is entitled to any permanent damages.
(8) Prejudgment Interest
122. Finally, NP claims that it is entitled to prejudgment interest on all costs to cure and all permanent damages. No prejudgment interest is awarded on these elements because the Court has found NP failed to establish its entitlement to costs of cure (other than attorney's fees under § 1988) or permanent damages.
123. While NP did not ask for prejudgment interest on damages the Court does find awardable — the fair return on the delta — it did ask for the "present value" of those damages. See Ex. 1.16 (chart of damage calculation). NP's expert assessed the "present" value of the damages, however, based on the date November 10, 2004. By asking for the present value of the damages, NP is essentially seeking prejudgment interest, the purpose of which is to provide compensation for the use or time-value of money. Cf. 2 Schwartz Kirklin, Section 1983 Litigation § 5.17, at 300 (3d ed. 1997) (in discussing reasonable hourly rate for attorney's fees under § 1983, noting that court could either award current hourly rate or award historic rate with upward adjustment of award to account for delay in payment).
That NP did not specifically ask for prejudgment interest in its supplemental complaint, which raised the Condition 13(b) claim, is not problematic not only because NP asked for the present value of its "fair return" damages but also because, in the supplemental complaint, NP asked for "relief as the Court deems proper." Supp. Compl. at 18. Moreover, Federal Rule of Civil Procedure 54(c) provides that, "[e]xcept as to a party against whom a judgment is entered by default, every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings." Fed.R.Civ.P. 54(c); see also Williamson v. Handy Button Machine Co., 817 F.2d 1290, 1298 (7th Cir. 1987) ("Williamson did not ask for prejudgment interest until after the verdict had been returned, but this is not dispositive. . . . Rule 54(c) was designed to divorce the decision what relief to award from the pleadings and arguments of counsel; the court is to determine, and award, the right relief in each case even if the complaint is silent on the question.").
124. The Court finds that prejudgment interest on the "fair return" damages is appropriate in order to fully compensate NP. See Western Pacific, 730 F.2d at 1288 (stating that "pre-judgment interest is an element of compensation, not a penalty"). For the same reasons discussed in ¶¶ 66, supra, the Court finds that the proper interest rate is 12 percent. See id. at 1289 ("We conclude that the measure of interest rates prescribed for post-judgment interest in 28 U.S.C. § 1961(a) is also appropriate for fixing the rate for pre-judgment interest in cases such as this, where pre-judgment interest may be awarded, unless the trial judge finds, on substantial evidence, that the equities of the particular case require a different rate."). Interest is to be compounded annually. See American Nat'l Fire Ins. Co. v. Yellow Freight Sys., 325 F.3d 924, 938 n. 11 (7th Cir. 2003) (refusing to adopt the rule that prejudgment interest must be compounded as a matter of law but noting that the norm is compound interest to ensure complete compensation); cf. 28 U.S.C. § 1961(b) (providing that post-judgment interest should be compounded annually).
125. The Court calculates damages with prejudgment interest through April 30, 2005 as follows: Date Damages One Year Two Years (or Three Years (or Portion Portion Thereof) Thereof) $4,195.37 $2,726.98 $10,536.33 $10,570.83 $10,708.18 $10,671.43 $10,633.42 $10,594.16 $10,490.29 $10,386.43 $10,293.70 $10,200.96 $10,169.26 $10,136.45 $10,342.19 $10,542.34 $3,544.87 TOTAL $156.741.19
This is the sum accrued from August 31, 2002, to August 31, 2003 ( i.e., 12 percent of $3,096.77, plus $3,096.77).
This is the sum accrued from September 1, 2003, to August 31, 2004 ( i.e., 12 percent of $3,468.38, plus $3,468.38).
This is the sum accrued from September 1, 2004 to April 30, 2005 ( i.e., 8 percent of 3,884.59, plus $3,884.59).
Interest should accrue on this amount starting May 1, 2005, at the same rate of 12 percent per annum.
II. CONCLUSIONS OF LAW
1. There has been no permanent taking. Rather, the proper analysis is one of a temporary taking. Pursuant to that analysis, damages for temporary diminution in value is $124,113, for the period from August 12, 2002, to November 10, 2003.2. NP did not fail to mitigate damages.
3. There are no damages for the costs of cure sought by NP. This conclusion is without prejudice to NP moving for attorney's fees under § 1988.
4. There are no damages awardable for delay caused by Condition 13(b).
5. There are no permanent damages recoverable as a result of Condition 13(b).
6. NP is entitled to prejudgment interest. Including prejudgment interest, the total damages award to NP is $156.741.19 as of April 30, 2005.
III. MISCELLANY
As stated above, see note 10, supra, NP's Daubert motion with respect to Mr. Carney is moot. In addition, as stated above, the Court grants the City's request for judicial notice, filed on March 25, 2005. See Docket No. 488 (City's request for judicial notice, filed on 3/25/05). Finally, the Court grants the City's request to submit post-trial rehabilitation evidence with respect to Ms. Quick. See Docket No. 478 (City's request for leave to submit post-trial rehabilitation evidence, filed on 2/16/05). The City has withdrawn its request for judicial notice regarding the new lawsuit filed by NP in state court. See Docket No. 489 (NP's complaint, filed on 3/28/05).
IT IS SO ORDERED.