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Judge Affirms $6.5 Million Jury Verdict against the City of Forest Grove

In the fall of 2011, a jury awarded David Hill Development $6.5 million against the City of Forest Grove for constitutional violations resulting from its delaying issuance of a final subdivision approval.  In October, 2012, responding to a motion for judgment notwithstanding the verdict, the judge largely upheld the jury’s decision, modifying it only with regard to the claim that obligations to make off-site improvements violated the Takings Clause. 

As an initial matter, the city argued that David Hill could not recover because the city was not the sole cause of the nine-month delay between the time of issuance of the preliminary and the final subdivision approvals.  The court disagreed, finding that the causation requirement for a Section 1983 claim for violation of constitutional rights requires only a showing of government delay, separate and apart from delays that may be attributable to other causes, that caused the loss.  In summarizing the evidence presented during trial, the judge found David Hill had a reasonable expectation that it would receive the final subdivision permit two-weeks after receiving preliminary approval and that the city’s conduct in not issuing the permit for none months, including stop work orders, caused the delay.

With regard to the Takings Clause, the city argued that certain development conditions to expend money in order to extend the city’s main electrical trunk line, install a road median and purchase an access easement where not unconstitutional exactions because no real property right was taken.  Relying on West Linn Corporate Park v. City of West Linn, 349 Or 58, 240 P.3d 29 (2010), the court agreed.  Setting aside the jury’s decision on the takings claim regarding the compelled improvements did not alter the “general” damages award in this case because the court found “there is ample evidence to support an award to David Hill based upon the other theories of liability.”

David Hill also argued that the city requiring that it reroute its sewer trunk line delayed the project causing a temporary taking.  The city responded that David Hill failed to establish any extraordinary delay for a compensable taking and there was no evidence of a temporary taking, in any event.  Given the ad hoc nature of such inquiries, the court found the jury did not err in concluding that the length of delay was unreasonable given the evidence of how long the process should have taken, the nature of the city’s conduct and the economic impact to David Hill.          

Next, the city argued that David Hill failed to identify “substantially similar” developers as required to establish a ‘class of one’ Equal Protection violation and that the city has a rational basis for its actions.  The city relied on a 7th Circuit test for similarity to argue David Hill was required to prove it was treated differently from another who was “prima facie identical in all respects” when the comparator development proposal did not involve the same sewer access and wetland issues.  Rejecting the city’s reliance on identical similarity, the court, citing the 9th Circuit test requiring only that the other developers are “alike,” found the comparators were sufficiently alike in the areas relevant to the improvements and permits required, and the timing for obtaining those permits. 

The city argued that it had a legitimate, rational basis for any different treatment between developers.  Any claim of rational basis can be undermined by showing that it was a pretext either because the rational basis is untrue or if the city had an improper motive.  During the trial, David Hill established that the proposed sewer plan conformed with the city’s sewer master plan but that the city went forward with additional sewer demands against the advice of its city attorney.  The evidence indicated to the court that the city’s action of delaying issuance of the permit was “simply unfair.”  Therefore, the court concluded David Hill was treated differently, the City’s actions were motivated by an improper purpose and there was no rational basis for the difference in treatment.      

With regard to both due process claims, the city asserted that it was rational for it to examine alternative sewer routes given the impact of the project on other developers.  The most compelling evidence noted by the court was that the city acted contrary to the advice of its own attorney imposing demands not faced by other developer that were unique to David Hill. 

Finally, the court rejected the city’s claims that the damages awarded by the jury were “grossly excessive” in that they were based on changes in the market and at most, should have been based on lost rental value.   The court disagreed finding the jury’s valuation reasonable.

Although this case is largely fact-specific, it contains some important lessons.  First, local governments need to be diligent in reviewing proposals during the preliminary subdivision approval phase.  Developers should be required to submit sufficiently detailed utility and road extension plans that allow for comprehensive review early-on allowing for the imposition of clear conditions of approval so all parties know what is expected.  Second, local governments need to consult with and follow the advice of their legal counsel.  Third, local governments must make detailed findings explaining how the facts presented establish, or fail to establish, compliance with the applicable criteria.  These findings can help immensely in the face of a challenge that the decision was irrational.  Finally, local government decision-makers should be cognizant of precedent.  Just like the land on which it is built, no two developments are exactly the same.  However, this case serves as a good reminder that overarching fairness and proportionality in decision-making can be very compelling for a jury, and a judge, when they are reviewing land use cases.  This is true, even in Oregon, a state where claims of arbitrary and capricious decision-making by a local government is generally given very little reverence and courts have historically been more likely to give deference.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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