On Nov. 28, the city lost the latest and most significant lawsuit to date over the now-undevelopable Beachwood subdivision east of Highway 1 and north of downtown. Yamagiwa v. Half Moon Bay was decided in a bench trial before U.S. District Court Judge Vaughn Walker. The judge's 167-page ruling finds Half Moon Bay responsible for creating wetlands on the site as well as a series of bungled policy decisions and legal maneuvers that together resulted in an inverse condemnation of property belonging to well-known Peninsula developer Charles "Chop" Keenan. Yamagiwa is a trustee for Keenan Family Trusts.
The city won the last legal battle over Beachwood in 2005 and a state court established that the land was unsuitable for residential development as a wetland in the California Coastal zone. But Walker supported Keenan's contention that the city created those conditions as part of flood control work in the area, making the city government liable for an unlawful taking of his development rights.
 The Beachwood property is 24.7 acres north of Terrace Avenue. Property owners and city officials have wrangled over development rights to the tract for decades. |
The multimillion-dollar judgment reflects the difference between what the land would be worth now had the city not created wetlands on the tract and its present value, which the court put at $2,205,000.
"The current City Council basically inherited this problem," said Keenan after the verdict. "And it's a mighty problem."
Walker's ruling notes a series of city blunders stretching back decades. Key dates include 1990, when the city approved a "vesting tentative map" that gave preliminary approval to a previous landowner for 83 homes on the site, 1993, when Keenan acquired the property, and 2000, when the city denied Keenan a CDP by citing wetlands on the property.
Keenan placed the blame for the large judgment squarely on the 2001 City Council, saying he would have settled the case then simply for the right to develop.
"They played fast and loose with the city's purse," he said.
But current City Council member Naomi Patridge - who was on the council in the early 1990s but not in 2001 - said the blame goes beyond one set of elected officials.
"It's easy for us to blame the other council, but when we were elected we took on the responsibility, for better or for worse. And this," she said, "is for worse."
Keenan said he was still willing to reach a settlement.
"Trust me, this is the last place I ever wanted to be, trying to figure out how to resolve these damages," said Keenan. "It's within this council's ability to settle this with nominal costs, relative to $40 million."
Keenan was adamant that the current verdict is solid and would hold up against any appeal.
"If I go through an appellate situation, there won't be a settlement," said Keenan. "If they lose, it's an existential question."
City officials have identified three ways of handling the judgment - appealing the court's decision, paying the full amount through a bond or other as-yet unidentified funding mechanism or reaching some mutually acceptable accommodation with Keenan. Behind-closed doors discussions of all three alternatives are ongoing. The City Council has met twice in closed session since the decision and has until Dec. 28 to file an appeal with the Ninth District Court of Appeals in San Francisco.
Granting development rights to another property could be one answer. Keenan confirmed last week that he has long been interested in property owned by Wayne Podesta. The tract is just west of Half Moon Bay High School and was once considered as a site for a new middle school.
Keenan noted that land values had dipped recently and that the Podesta property might not be enough to "solve the problem."
Others maintain such a deal would be unacceptable capitulation to the developer and say an appeal is mandatory in cases like this.
"You can't even begin to digest a decision like that without initiating some sort of appeal process. That's how you negotiate," said Mark Massara, director of coastal programs for the Sierra Club and a longtime environmental lawyer. "Even if you are inclined to try to work with the guy - even if you think there is some other appropriate place to develop - you can't even make those decisions within the timeframe allowed."
A full capitulation could put the city in extreme financial jeopardy and would create a daunting precedent in coastal land-use law, Massara said. If Walker's opinion were to stand, development cases involving wetlands would be more likely to draw challenges that a city or previous owner created or contributed to the wetlands and should pay or mitigate the situation, he added.
"My look at the thing is that there is very little chance that this will be upheld on appeal," said Massara.
"The City Council, as the responsible body, has certainly got a set of decisions to make - the most important decisions in several decades for Half Moon Bay," said Rich Gordon, the San Mateo County supervisor.
City officials say they simply do not have the money to pay the judgment. Laws exist that would enable the city to disband - similar to a bankruptcy - and revert to an unincorporated entity of San Mateo County, said Gordon. But he doesn't expect such an unprecedented collapse.
"It's never happened in San Mateo County," Gordon said. "If it has happened elsewhere in the state, I'm not familiar with it."
He noted that any bond measure would function as a loan that could spread city payments over time, but would not eliminate the debt. And relief for the city in any form from the state or federal government is a long shot.
"I don't see that happening," said Gordon. "The state has a $10 billion deficit and the federal government has other matters at hand."
While a collapse of the city as a distinct legal entity is unlikely, California legal code outlines a drastically constrained future for the city should it have to pay off a large settlement, and lawyers familiar with such cases say city lands not dedicated to direct public service could be vulnerable.
The city could be made to channel any undesignated funds in its budget toward a settlement. The city would have to pass a hardship ordinance to use an installment system and would then be liable for a steady march of interest payments over the years.
The city could sell off lands not dedicated specifically to public service, said Steve Wilson, an attorney familiar with such judgments. Wilson himself successfully represented plantiffs in a case that sought public records from the city following the purchase of parkland in 2001.
"The judgment could force the city to budget payments for the next 10 to 20 years," said Wilson. "(The city) could do nothing but hire cops and fix a pothole - and not many of those."
Any solution involving the Podesta property would likely involve the Cabrillo Unified School District and access through the district's private road - Lewis Foster Drive. That would involve a tangle of Coastside players, including school board President Charlie Gardner. He's been active in Coastside Community First, a group that supports infrastructure projects including the oft-discussed Foothill Bypass, which was once considered integral to the Beachwood development.
"I tried to meet with Chop Keenan about six months to a year ago," said Gardner. "He had made overtures to the Podesta property and access through Lewis Foster Drive.
"He's kind of an interesting guy," Gardner said. "He said, 'I have this lawsuit with the city and as soon as I win that, we'll sit down and talk.'"
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WHAT SHOULD THE CITY DO ABOUT BEACHWOOD?
"When the city gets down to responsibility, they'll get a solution. A simple apology goes a long way. I've been in this business 40 years and people don't believe this story when I tell it to them. You get cities who get tough, but you don't get cities who try to undo what they have already granted.
Charles "Chop" Keenan, Beachwood developer
"That's bluster. What do you do, negotiate at the barrel of a gun? The notable thing is that this comes from crazy Vaughn Walker. The city would be crazy not to appeal because (Walker) has a history of decisions like this that goes way back.
Mark Massara,
Sierra Club director of coastal programs
"This is not a game of who's going to blame who - this is who's going to take leadership and lead us out of this. There's no protection for cities, that's the sad part. We've got to look at: do we go get (an) appellate attorney?"
Naomi Patridge,
Half Moon Bay City Council member
"I was very much surprised by the scope of the judgment and immediately concerned about a judgment that represents four times the annual income of the city. We support local municipal government and would hope that the City Council could resolve this. The public should not have any concerns about the delivery of services in this community. Collectively, we'll make that happen."
Rich Gordon, San Mateo County supervisor
"Everyone loves this city and is devastated in the same way. This shouldn't have happened, plain and simple. This shouldn't have happened to this small city."
Bonnie McClung,
Half Moon Bay City Council member
"I was here when we first became a city. People wanted to be represented and we have lost that. Too many of these decisions are made behind closed doors. Please don't make any deals without people knowing about it."
Eddie Andreini Sr., Half Moon Bay resident
"I find a lot of this hot, emotional language in this (judgment) really disturbing. There was no volition to try and hurt the developer. And it's a big difference."
Mike Ferreira, former City Council member
"A second opinion legally should be the first course of action. This is a consequence of essentially ignoring the rights of people. We really need to face up to our own culpability in this and move forward."
Jim Larimer,
Coastside County Water District director
"I'm ashamed that the city's representation was this bad. This is not an instance when you want to stick with a loser. Consider the option when you appeal - which you must do - of looking into a Chapter 9 bankruptcy filing. Please don't back this community into a corner with a land swap that will get you into an even worse situation than you are now."
Steve Wilson, attorney and city resident
"Nobody's going to die, services are not going to be displaced. As expensive as this might be, I think there's help."
Ken King, Half Moon Bay resident
"Appeal is a no brainer - you have to do that as a tactical move. I still think you have an opportunity for alternatives."
Charles Gardner, Cabrillo Unified School District board president
"A lot of these decisions we're wrestling with tonight were made 20 years ago. This is probably the biggest crisis since the city was incorporated. ... I think this might be a unique opportunity for the city to pull together. I think we're up to it."
Jim Grady, City Council member
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WHITHER BOLSA CHICA?
Judge Vaughn Walker made at least one assertion in his 167-page Beachwood judgment that is bound to raise eyebrows among environmentalists: a landmark 2000 San Diego case known as "Bolsa Chica" wasn't so landmark after all.
Bolsa Chica v. Superior Court of San Diego County concerned 1,588 acres of undeveloped wetlands in unincorporated Orange County. A developer contemplated hundreds of homes on the site - development that would have caused a loss of habitat. The California Coastal Commission argued that would be fine, as long as the developer established new and perhaps even better habitat nearby.
Not so, the court ruled. The trial court judge stated that impacts on "environmentally sensitive habitat areas" resulting from development cannot be mitigated elsewhere. Instead the ESHA must be preserved.
The city of Half Moon Bay cited the case during the Beachwood trial, suggesting that Bolsa Chica changed the legal environment between 1990, when it granted preliminary approval for Beachwood, and 2000, when it denied development rights due to wetlands on the property.
Walker bristled.
"First and foremost," he wrote, "the Bolsa Chica decision did not 'change' the law." He notes that the Coastal Act of 1976 already prohibited mitigation to allow for residential development nearly 25 years before Bolsa Chica.
"(Bolsa Chica) simply interpreted and applied the long-existing statutory language ... restricting residential development in wetland areas," Walker wrote.
The judge also noted that the city never mentioned Bolsa Chica when it denied development rights to Beachwood in 2000. Instead city officials spoke of new wetlands on the site as the reason for denial.
"The city's after-the-fact attempt to rewrite the reasons for its denial of the Beachwood CDP is rejected," Walker wrote.
- Clay Lambert
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Beachwood Property Timeline
• Oct. 5, 1976: City approves a 97-lot subdivision for Beachwood.
• March 16, 1982: City Council adopts a resolution forming the Terrace Avenue Assessment District.
• Sept. 21, 1982: City signs easement agreement with then-Beachwood owner to allow work on TAAD project.
• Aug. 18, 1983: City hires Bay Cities Paving and Grading as the TAAD general contractor.
• Early 1984: Bay Cities works on drains on Beachwood property and photos from that time show equipment movement and the stockpile of dirt.
• June 28, 1984: "Unorthodox construction" by Bay Cities created a shortage of fill for the TAAD project. "...What is relevant," federal court Judge Vaughn Walker writes in his judgment, "is that the dirt shortage arose on the city's public project, by a combination of factors all controlled by the city."
• July 17, 1984: City authorizes borrowing 13,000 cubic yards of fill from Beachwood.
• Oct. 16, 1984: City consultant notes standing water in depressions dug by Bay Cities.
• Dec. 26, 1989: Pilarcitos Valley Associates, controlled by local developer William Crowell, acquires Beachwood along with 93 water connections, from the William Lyon Company.
• July 3, 1990: City Council approves a vesting tentative map allowing PVA to begin to develop 83 residential lots.
• March 28, 1991: City Council adopts urgency ordinance imposing a moratorium on new building permits that require new sewer permits. The moratorium, originally intended to last four months, would be extended 11 times and last seven years.
• June 7, 1993: PVA loses the property in foreclosure to an entity that held a junior deed of trust.
• Dec. 10, 1993: Joyce Yamagiwa, acting as a trustee for Keenan Family Trusts, acquired the note on the property. Crowell, a friend of Keenan's, becomes the Palo Alto developer's point person on Beachwood.
• Feb. 12, 1998: With the sewer plant expansion in sight, Yamagiwa files for a CDP.
• Nov. 22, 1999: Sewer plant expansion completed - 10 years after it was approved.
• 1999: City hires three separate consultants who differ on amount of wetlands on Beachwood.
• 2000: City rejects Yamagiwa's CDP application, citing nine separate wetlands areas on the project. Yamagiwa sues city and San Mateo County Superior Court sides with her, issuing a writ of mandate requiring a CDP.
• July 27, 2005: California Court of Appeal, First Appellate District, overturns trial court. Appeals court rules the city correctly defined wetlands on Beachwood.
• Nov. 28, 2007: U.S. District Court Judge Vaughn Walker finds for Beachwood developers, awarding nearly $36.8 to Yamagiwa.
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