Judge James C. Chalfant, Case Number: 23STCP03499, Date: 2024-11-14 Tentative Ruling

Janet Jha v. City of Los Angeles

and City Council, 23STCP03499

Tentative decision on motion to set appeal bond: granted

Petitioner Janet Jha (“Jha”) moves for an order setting an appeal bond in the amount of $37,654,972 against Respondents City of Los Angeles and Los Angeles City Council (“City Council”) (collectively, “City”).

The court has read and considered the moving papers, opposition, and reply, and renders the following tentative decision.

Petitioner Jha filed the Petition against the City on September 21, 2023, alleging (1) mandamus based on a violation of the Permit Streamlining Act (“PSA”); (2) mandamus based on a violation of the Housing Accountability Act (“HAA”); (3) mandamus based on a violation of the Density Bonus Law; and (4) declaratory relief. The Petition alleges in pertinent part as follows.

When the Legislature enacted the Housing Element Law, it declared that local governments need to designate and maintain a supply of land and adequate sites for the development of housing sufficient to meet the locality’s housing need for all income levels. Pet., ¶21.

The HAA provides an avenue for developers to provide housing for very low, low-, or moderate-income households (sometimes referred to as “low-cost housing”) when a local government fails to adopt a housing element in substantial compliance with the Housing Element Law. Pet., ¶22. The local government shall approve housing, and not condition that approval in a matter rendering that housing project infeasible, unless the local government can make certain written findings based upon a preponderance of the evidence. Pet., ¶23.

A local jurisdiction cannot determine whether its adopted element is in substantial compliance with the Housing Element Law. Pet., ¶25. It must submit a draft housing element to the State Department of Housing and Community Development (“HCD”), which must issue findings before the local jurisdiction adopts the housing element. Pet., ¶25. If HCD finds the draft element is not substantially compliant, the local jurisdiction must either revise the draft to address any issues or adopt the draft housing element with written findings explaining why it substantially complies with the Housing Element Law. Pet., ¶25. It must then submit the adopted housing element to HCD for it to find whether it substantially complies with the Housing Element Law. Pet., ¶25. In a March 16, 2023 memorandum, HCD advised that a local jurisdiction’s housing element is only in substantial compliance with the Housing Element Law on the date HCD issues a letter finding to that effect. Pet., ¶26.

The Housing Element Law requires local governments to update their housing element in eight-year cycles. Pet., ¶27. The City had not adopted a substantially compliant housing element by the time the current cycle began on October 15, 2021. Pet., ¶27. Although it drafted a housing element on November 24, 2021, HCD found on February 22, 2022 that it was not substantially compliant. Pet., ¶28. The City revised and resubmitted the draft housing element on April 28, 2022, and HCD found it substantially compliant on May 11, 2022. Pet., ¶28. The City adopted the housing element on June 14, 2022, and HCD certified its compliance with the Housing Element Law on June 29, 2022. Pet., ¶28.

Under Government Code[1] sections 65589.5(o)(1) and 65941.1(a), a housing development applicant who submits a complete preliminary application is vested with the zoning and general plan standards in effect at the time of submission. Pet., ¶30. This includes entitlement to the Builder’s Remedy if submitted when the jurisdiction does not have a compliant housing element, even if it adopts one during the entitlement process. Pet., ¶31. HCD confirmed as much in a June 2023 Notice of Violation issued to La Cañada Flintridge and in an October 2023 Letter of Technical Assistance to Santa Monica. Pet., ¶32, Ex. A.

On June 23, 2022, Jha submitted a preliminary application for a 40-unit project with 20% set aside as affordable to lower-income households (“Project”) at 13916 W. Polk Street. Pet., ¶53. Because the City found the Project was complete on June 24, 2022, development rights in effect on that date vested for the Project. Pet., ¶54.

Jha proposed a housing project that reserved 20% of the units for low-cost housing while the City was out of compliance with the Housing Element Law. Pet., ¶55. Under the Builder’s Remedy, the City was barred from disapproving the Project unless it made one of the written findings required under section 65589.5(d). Pet., ¶55.

On August 11, 2022, Jha filed an Affordable Housing Referral Form with the City’s Affordable Housing Services Section. Pet., ¶57. The City signed this form on December 12, 2023. Pet., ¶64. After a meeting with City staff on December 9, 2022, Jha was allowed to submit a PSA development application. Pet., ¶66. Jha submitted the application and paid the fees on December 21, 2022. Pet., ¶66.

On January 26, 2023, the City sent Jha a 39-page Project Review letter. Pet., ¶67. The Project Review asserted the application was incomplete and did not comply with objective zoning standards. Pet., ¶67. The Project Review further said that, although the Project was eligible for the Builder’s Remedy, HAA does not specify the entitlement process that a local government can require. Pet., ¶68. The City Planning Department’s (“Planning”) position was that a general plan amendment (“GPA”) and rezoning amendment were the proper entitlement path. Pet., ¶68. This is not an entitlement at all, but rather a legislative action. Pet., ¶68.

Section 65589.5(d) does provide an entitlement path. Pet., ¶71. If HCD does not find a local jurisdiction’s housing element substantially compliant by the jurisdiction’s statutory deadline, the local jurisdiction may not use section 65589.5(d)(5) to deny a qualifying affordable housing project. Pet., ¶72. HCD’s Notice of Violation to La Cañada Flintridge explained that a jurisdiction shall not disapprove a housing development project for low-cost housing, or condition approval in a manner that renders the housing development project infeasible for development for such households, without one of five written findings. Pet., ¶71, Ex. A.

On April 5, 2023, Jha resubmitted revised application materials in response to the Project Review. Pet., ¶81. The City sent a second Project Review asserting the application was incomplete for failure to comply with City code standards. Pet., ¶¶ 82-83. The letter emphasized that the City would not process the development application unless Jha sought legislative rezoning that she did not want. Pet., ¶85.

Jha appealed the City’s incompleteness determination of her application. Pet., ¶86. The City Council’s Planning and Land Use Management Committee (“PLUM”) recommended denial of the appeal, and the City Council denied it on June 27, 2023. Pet., ¶¶ 92-93.

On May 16, 2023, the City wrote Jha a letter asserting that the preliminary application’s submittal had expired and that Jha’s vested rights therefore had terminated. Pet., ¶95. Section 65941.1(d)(2) states that if a public agency determines that the application for the development project is incomplete, the development proponent shall submit the specific information necessary to complete the application within 90 days of receiving the agency’s written identification of the necessary information. Pet., ¶99. This means that the 90-day period resets with every new completeness determination. Pet., ¶99. The City wrongly interpreted the statute to mean that an applicant has only a single 90-day clock after the first written incompleteness determination. Pet., ¶100. Planning argued that even if Jha were entitled to approval pursuant to the Builder’s Remedy, it no longer applied because Jha’s vesting rights had expired and the City’s Housing Element was now in substantial compliance with the Housing Element Law. Pet., ¶104.

After Jha received the City’s May 16 letter, she asked HCD to clarify the preliminary application expiration provision. Pet., ¶103. HCD confirmed that the application remains valid after a second incompleteness determination so long as the applicant resubmits within 90 days of that determination. Pet., ¶103.

The first cause of action seeks mandamus for violation of the PSA. The PSA requires public agencies to compile lists of the information required from an applicant for a development project. Pet., ¶109. It also has strict timelines when an agency must determine whether an application is complete. Pet., ¶109. Agencies can only judge whether an application is complete based on the items in the checklist. Pet., ¶109.

The City’s Project Reviews violated the PSA because they treated project consistency with a zoning ordinance or general plan as an item necessary for an application to be complete. Pet., ¶110. The City refused to process an application based on a substantive decision regarding project consistency. Pet., ¶110. Section 65931 defines development projects as activities involving the issuance to a person of a lease, permit, license, certificate, or other entitlement for use by one or more public agencies. Pet., ¶111. This does not include rezonings or GPAs. Pet., ¶111. Courts have held that applicants cannot use the PSA to compel legislative changes to a zoning ordinance or a general plan. Pet., ¶111. Conversely, the City cannot demand an applicant to seek such changes through a PSA completeness determination. Pet., ¶111. The City refused to accept Jha’s development application based on purported non-compliance with substantive zoning standards and criteria, not because of incomplete information. Pet., ¶114.

The second cause of action seeks mandamus for violation of the HAA. The City unlawfully disapproved the Project and failed to proceed in the manner required by law. Pet., ¶117. The City disapproved the low-cost housing Project without making one of the findings under Section 65589.5(d)(1)-(5) and also did not support such findings by a preponderance of evidence in the record. Pet., ¶121. Although Jha submitted the preliminary application before the City’s Housing Element was deemed substantially compliant with the Housing Element Law, the City attempted to deny her the Builder’s Remedy. Pet., ¶122.

The third cause of action seeks mandamus for violation of the Density Bonus Law. The Project reserved 20% of the units for low-cost housing. Pet., ¶128. This entitled the Project to two incentives or concessions and a waiver or reduction of any development standards that will physically preclude the Project at the proposed density. Pet., ¶128. The City denied Jha those incentives without making the public health and safety findings required under the HAA. Pet., ¶129.

The fourth cause of action seeks declaratory relief. The City has avoided obligations under state law through its refusal to process housing development projects that qualify under the Builder’s Remedy. Pet., ¶132.

Jha seeks a writ of mandate compelling the City to review and process development applications pursuant to the PSA and SB 330. Pet. Prayer, ¶¶ 1-2. Jha also seeks a writ of mandate (1) voiding the June 27, 2023 denial of the PSA appeal based on violation of section 655589.5(d), (2) compelling Planning to accept and process the Project application, and (3) compelling the City and Planning to take all steps necessary to process the application, approve the Project, and issue all related approvals within 60 days. Pet. Prayer, ¶3. Jha also seeks a declaration concerning the City’s violations. Pet. Prayer, ¶7.

Jha also seeks attorneys’ fees, costs, and fines under section 65589.5. Pet. Prayer, ¶¶ 8-10.

On November 8, 2023, the parties stipulated to extend the deadline for all responsive pleading to February 1, 2024.

According to Petitioner, the City sought a writ of mandate in the court of appeals on August 19, 2024, which was denied on October 3, 2024.

On September 17, 2024, the court entered judgment and the clerk issued a writ of mandate the next day.

Petitioner anticipates that the City will appeal and filed the instant motion to set bond on October 10, 2024.

An appeal may be taken from a judgment, except an interlocutory judgment. CCP §904.1(a)(1).

In order to obtain appellate review of the trial court’s order under the HAA, a party may file a petition within 20 days or such further time not exceeding an additional 20 days as the trial court may allow for good cause. §65589.5(m). The party may also appeal the judgment or order of the trial court under CCP section 904.1. Id. If the local agency appeals the judgment, the local agency shall post a bond to the benefit of the project applicant in an amount to be determined by the trial court. Id.

Jha is the owner of the Project. Jha Decl., ¶2. As a result of the denial of her application for the Project, the City has caused Jha to incur substantial financial costs. Jha Decl., ¶3. These costs are directly attributable to the City’s refusal, and continuing refusal, to perform an act it had a duty to perform no later than January 19, 2023. Jha Decl., ¶3.

The additional delay will inflict significantly increased financial costs for Jha, detrimentally decreasing the valuation of the Project and increasing the likelihood of making the Project infeasible. Jha Decl., ¶4. Because of the City’s appeal, Jha will absorb unnecessary Project carrying costs. Jha Decl., ¶4. Construction costs continue to escalate, future rents are delayed, and holding costs will be incurred, all while housing market rents risk declining, possibly negatively affecting the valuation of the Project. Jha Decl., ¶4.

After consulting several contractors and referring the DGS California Construction Cost Index 2021-2025, Jha found that there is 17% increase in the construction cost from the Past Delay and 28% increase in the construction in the Projected Delay. Jha Decl., ¶6. Applying these increased costs to a 100,260 square foot building results in the following costs:

Existing investors have investment accounts totaling in excess of $2,500,000. Jha Decl., ¶7. Petitioner must pay a preferred return on investment equal to 10% per annum, or $20,833 per month. Jha Decl., ¶7. Applying this monthly cost to the Past Delays and the Projected Delays results in the following costs:

Additionally, new investment must be sought with a projected requirement to show a minimum of 20% annual return. Jha Decl., ¶8. Further, Petitioner must pay interest on the current outstanding loan equal to 8% per annum on $2,500,000 as well as property taxes on the Project site equal to about $14,661 per year. Jha Decl., ¶¶ 9-10.

It is necessary to manage the building as it exists now, manage the attorneys’ efforts to achieve and defend their approval, manage their investors, and other tasks that arise from time to time. Jha Decl., ¶11. Jha projects the time requirement to be roughly 100 hours per year at a rate of $200 per hour. Jha Decl., ¶11. Estimated administrative costs for Past Delays are $30,000. Jha Decl., ¶11. Estimated administrative costs for Projected Delays are $50,000. Jha Decl., ¶11.

Due to the increased uncertainty of the US economy, increased inflation, and increased interest rates, the City’s appeal creates a real possibility that the entire Project might become infeasible in the next 30 months. Jha Decl., ¶13. In the event of a catastrophic failure, projected losses are expected to be about $5,325,000. Jha Decl., ¶13.

According to Petitioner, the City sought a writ of mandate in the court of appeals on August 19, 2024, which was denied on October 3, 2024. Petitioner anticipates that the City will appeal from the judgment and seeks an appeal bond of $37,654,972. The City asks for a bond of $400,000.

Petitioner’s requested bond amount must be reduced. The bond may not cover damages from the City’s errors (Past Delay). The City correctly argues that there is nothing in the HAA which indicates an intent to rescind, or repeal the City’s immunities from damages. Opp. at 2, 3-5. Relatedly, the City points out that Petitioner seeks a bond to cover damages occurring prior to the date of entering judgment on September 17, 2024, and thus has no relation to the appeal period. Opp. at 2.

Petitioner replies that SB 575, which enacted the bond requirement, demonstrates that the purpose of the bond is to deter unlawful actions by cities. O’Neill Decl., Ex. D. Reply at 3. Exhibit D does not say that, and it might constitute an unconstitutional penalty if it did. Damages from Past Delay will not be included in the bond. The bond amount will be calculated from the date of judgment forward.

The City argues that Petitioner seeks to recover speculative lost investment returns at the rate of 10% and 25% of the investment, instead of the “increases in costs” intended to be covered by the bond. Petitioner responds that lost returns are intended to “reflect the consequences of the amount of time it took to get through the legal process.” Ex. D.

The court agrees. Lost return is a consequence of delay and subject to the bond requirement. However, Petitioner will be limited to 10% for existing investors and no amount will be added for speculative new investment.

The City argues that Petitioner seeks to recover costs for a 30-month appeal period when the median appeal period for the Second District Court of Appeals is estimated to be at 616 days or 20.5 months. Wong Decl., Ex. A. Opp. at 3. Petitioner replies that the 20.5 months does not account for the time between judgment and appeal, or the 30-day periods for an appellate decision to be final or to seek review from the California Supreme Court. The court accepts the City’s 20.5-month median.

The bond will be set at the 28% increased construction cost, the loss of returns at 10% for existing investors, mortgage interest, property taxes, administrative costs, and lost rent for 20.5 months. Petitioner’s counsel is directed to make these arithmetical calculations based on the Jha declaration’s calculations for a 30-month period, confirm the numbers with the City’s counsel, and submit a proposed order with the final amount of the bond.

[1] All statutory citations are to the Government Code unless otherwise specified.

[2] The court has ruled on the City’s evidentiary objections, sometimes with a comment. The clerk is directed to scan and electronically file the rulings.

Building Area of the Project	100,260 Square Feet
Construction cost ($400 per square foot including the permit fees)	$40,104,000
Cost Increase per square foot for past the 18 months (Past Delays)	$6,765,182
Cost Increase per square foot for the future 30 months (Projected Delays)	$13,177,345
Total additional construction costs due to delays	$19,942,528

Investment Amount	$2,500,000
Preferred return on investment	10%
Returns due to past delays	$375,000
Returns due to projected delays	$625,000
Total returns due to delays	$1,000,000

Items	Past	Projected	Total
Increased Construction Costs	$6,765,182	$13,177,345	$19,942,528
Preferred Return to Existing Investors	$375,000	$625,000	$1,000,000
Preferred Return on New Investment	$937,500	$1,562,500	$2,500,000
Mortgage Interest	$300,000	$500,000	$800,000
Property taxes	$21,992	$36,653	$58,644
Administrative Costs	$30,000	$50,000	$80,000
Lost Rent	$2,980,800	$4,968,000	$7,948,800
Risk-based Assessment of Loss	-	$5,325,000	$5,325,000
Total	$11,410,474	$26,244,498	$37,654,972