The Project:
Ventura29, LLC purchased real property, located in the city of Buenaventura, California, from a private party. The sellers had previously received Tentative Tract Map approval for a multi-unit townhome project from the City. The Property abutted a parcel of real property owned by the City, who had acquired it in 1967.
Ventura29 proceeded to develop the Property pursuant to the previously approved Tentative
Tract Map. In the course of doing so, Ventura29 caused a subsurface soil investigation to be
performed. A soil report was produced that identified the existence of some uncertified fill on the
Property. Ventura29 then submitted a grading plan for approval. As a condition of final approval
of the grading plan, the City required Ventura29 to incorporate the soil report and its conditions
into the grading plan and to construct a pedestrian walkway across the City Parcel for access to a
park. Ventura29 agreed to these conditions and grading plan was approved was approved by the
City.
The Problems:
When excavation commenced, substantial amounts of uncertified fill was discovered in the grade of both the Property and the City Parcel. It consisting almost exclusively of concrete curb and gutter, concrete street sections, footings, asphalt and rebar, all of which were consistent with waste from public works projects.Ventura29 proposed using geofabric to stabilize the areas with the uncertified fill located outside of the Project building pads as well as on the City’s property where the walkway was to be constructed. The City’s inspector orally informed Ventura29 that the City’s engineer had rejected their proposal. The inspector also stated that Ventura29 must excavate the Property and the City Parcel where the walkway was to be installed to “native bottoms,” otherwise the City would revoke the grading approval. This requirement for remedial grading far exceeded the extent of grading contemplated or required for the Project as designed.
Ventura29 had the right to appeal that decision to the City’s public works director but was apparently ignorant of that right and was not informed of it by the City’s representatives.
Instead, Ventura29 completed the grading. After excavating and exporting 40,000 tons of the objectionable material—almost all of which was on the City Parcel—Ventura29 tried, unsuccessfully, to negotiate a reimbursement for the costs thereof from the City, more than a million dollars. Ventura29 also hired a construction forensics firm who discovered that the City had used its property and, apparently Ventura29’s as well, as a dump site starting in 1967.
Instead, Ventura29 completed the grading. After excavating and exporting 40,000 tons of the objectionable material—almost all of which was on the City Parcel—Ventura29 tried, unsuccessfully, to negotiate a reimbursement for the costs thereof from the City, more than a million dollars. Ventura29 also hired a construction forensics firm who discovered that the City had used its property and, apparently Ventura29’s as well, as a dump site starting in 1967.
The Lawsuit:
Ventura29 filed an action against the City for, among other things, inverse condemnation. Ventura 29 alleged that the City’s dumping of uncertified fill on the Property and the City Parcel, along with City’s requirement that appellant remove the fill, “result[ed] in a taking and damaging of the value of the Property in an amount in excess of $1,000,000. Ventura29 alleged that it was ignorant of its right to appeal and that the City had not informed it of that option. Ventura29’s complaint also included claims for private nuisance, trespass and negligence. The City demurred to the complaint and it was eventually sustained without leave to amend on all claims.
The trial court concluded that Ventura29’s claim for inverse condemnation was barred because it
had not exhausted its administrative and judicial remedies, stating that Ventura29 had a means of
challenging the oral modifications to the permit. Namely, it could have refused to comply and
administratively appealed from the revocation of the grading permit. Alternatively, it could have
filed a petition for writ of mandate in the superior court challenging the illegal (i.e., oral)
modification of the grading permit. But having accepted the benefits of the permit Ventura29
could no longer sue for inverse condemnation. The trial court also found the other three claims in
the complaint to be time barred.
The Appeal:
Ventura29 appealed the trial court’s ruling. The COA upheld the trial court, recognizing that while Ventura29’s claim for inverse condemnation was legally cognizable on the alleged facts, it was barred because Ventura29 had not exhausted its administrative remedies. In so doing, the Court of Appeal discussed the many public policy benefits of the doctrine. These are:- Allowing the administrative agency or organization an opportunity to redress the alleged wrong without interference by the courts may make litigation unnecessary and relieve the courts of an unnecessary burden.
- Even if the plaintiff does not obtain complete relief, there may be partial relief that reduces the likelihood and scope of litigation.
- An administrative remedy ordinarily provides a more economical and less formal forum to resolve disputes and provides an opportunity to mitigate damages.
- The exhaustion requirement also promotes the development of a more complete factual record and allows the agency to apply its expertise, both of which assist later judicial review if necessary.
- All of these factors both promote judicial economy and afford due respect to the administrative or organizational dispute resolution process. Citing to McKart v. United States (1969) 395 U.S. 185, [“A complaining party may be successful in vindicating his rights in the administrative process. If he is required to pursue his administrative remedies, the courts may never have to intervene”].
The Court of Appeal also noted that the exhaustion doctrine does not apply when the administrative remedy is inadequate. For example it does not apply when the administrative procedure is too slow to be effective, or when irreparable harm would result by requiring exhaustion of administrative remedies before seeking judicial relief, or when it is clear that seeking administrative remedies would be futile.
The COA then examined the specific arguments of Ventura29. The complaint explained that it would have been infeasible to stop the Project in order to pursue an appeal due to extensive overhead costs, carrying cost and a balloon payment on a construction loan. Adding that the cost to stop work on the Project was infeasible and would have resulted in catastrophic losses.
The COA concluded that this was not true. It noted that had Ventura29 appealed, it could have concurrently removed the uncertified fill where the buildings were to be constructed and within a three-foot distance from the building’s foundation while an appeal was pending. The removal of
this fill would have been mandatory even if the City had not modified the grading plan. The additional costs of doing so outside of that area being the only remaining issue. The excavation of the City property could have been left for last because that was where the great majority of the additional excavation was to be performed. Thus, Ventura29 had nothing to lose by filing an appeal.
The Court of Appeal also rejected Ventura29’s claim that time-sensitive construction would have come to a grinding halt with no forward progress until an appeal right was exhausted. That claim was contradicted by Ventura29’s contention that it would have immediately appealed the the City
Engineer’s determination to at least preserve its rights had it known the City intended the Engineer’s determination to be appealable. Ventura29 assumed that an appeal would have been a protracted affair. But that was speculation. Since the grading of the Property was underway,
Ventura29 justifiably could have requested an expedited appeal. And there is no reason why an appeal could not have been expeditiously decided. The City’s appellate procedure is simple and straightforward. To wit:
The complaining party appeals to the Public Works Director.
“The appeal shall be on forms as provided by the Public Works Director and shall specifically set forth the grounds for appeal and reason or basis for disagreement with the decision of the City [E]ngineer.” (Muni. Code § 12.210.030.)
“[T]he Public Works Director shall determine one of the following:
- The City Engineer’s decision was a reasonable interpretation of this Part 2 and that determination shall stand; or
- Based on findings supported by substantial evidence: … There are alternate grading methods that will provide equivalent levels of protection of the public health and safety. Such alternates shall be specifically delineated in upholding the appeal.” (Ibid.)
- “The municipal code does not require the Public Works Director to conduct an evidentiary hearing. “
- The decision of the Public Works Director shall be final and there shall be no further appeal to the City Council or any City advisory body.”
If Ventura29 had filed an appeal, the parties may have reached a compromise. In the absence of a
compromise, we do not know what the Public Works Director would have decided. The Director
was not bound by the City Engineer’s decision. The Director may have accepted Earth Systems’
alternative mitigation measures, particularly under the pedestrian-only walking path on City
Parcel. The walking path would not be subjected to heavy loads.
Venture29 complained at oral argument that it is unfair for the City to modify the approved grading plan after appellant had commenced grading the construction site. But in view of their failure to appeal to the Public Works Director, it would be unfair to impose upon the City an unexpected potential liability of more than $1 million for the cost of complying with the modification.
Finally, permitting a developer to bring an action for damages without exhausting its administrative remedies would have a chilling effect on governmental regulation of new construction. Construction is a risky business. The developer can never be certain of what it will find when it grades the construction site. Unforeseen, subsurface conditions may be discovered. Their discovery may lead public officials to believe that modifications of approved plans are necessary to assure that the project is soundly constructed and does not compromise public safety. This is what happened here. Public officials will be loath to modify approved construction plans if, without seeking available administrative review, the developer may comply with the modifications, complete the project, and then recover from the government the cost of the modifications.
Finally, had Ventura29 filed an appeal, the City would have been promptly alerted that the City Engineer’s decision was being questioned and would have been allowed to mitigate potential damages and propose alternative mitigation measures. Land use planning decisions entail a delicate balancing of interests. An “under protest” exception to the general waiver rule as in the present case would upset this balance and inject uncertainty into the planning process. If every owner who disagrees with the conditions of a permit could unilaterally decide to comply with
them under protest, do the work, and file an action in inverse condemnation on the theory of economic coercion, complete chaos would result in the administration of this important aspect of municipal affairs.
Lack of Written Modification No Excuse for Not Exhausting Administrative Remedies
Appellant maintains that the City Engineers’ oral modification of the grading plan “violated the City’s Municipal Code,” which required that the modification be approved in writing by the City Engineer. The complaint alleged: “The modification to the Grading Plan was imposed verbally [i.e., orally,] in the field, with no supporting documentation ….” But the absence of a writing does not excuse appellant’s failure to exhaust its administrative remedies before bringing an action for inverse condemnation.Ignorance of the Law is No Excuse
The complaint alleged appellant did not know it had a right to appeal the City Engineer’s decision to the Public Works Director. “Ignorance of the law is no excuse. This maxim is so long standing and so well established that it is part of the very fabric of our legal system. Knowledge of the building and zoning laws will be imputed to property owners. Ventura29’s ignorance is particularly inexcusable because it was a sophisticated real estate developer. Developers are sophisticated entities, capable of and expected to conduct due diligence to determine their rights and duties. Ventura29 never asked City officials if the City Engineer’s decision was appealable or otherwise reviewable by higher authority.No Equitably Estoppel
Ventura29 claimed that the City was equitably estopped from asserting a forfeiture based on its failure to exhaust administrative remedies because the City did not inform appellant of its right to appeal. The Court of Appeal noted that the doctrine of equitable estoppel ordinarily will not apply against a governmental body except in unusual instances when necessary to avoid grave injustice and when the result will not defeat a strong public policy. The doctrine is founded on notions of equity and fair dealing and provides that a person may not deny the existence of a state of facts if that person has intentionally led others to believe a particular circumstance to be true and to rely upon such belief to their detriment. Nothing in the record suggests that the City officials intentionally led Ventura29 to believe that the City Engineer’s decision was not appealable or that City officials so acted that appellant had a right to believe they had so intended.” The issue of appealability was never discussed.
Finally, Ventura29 cited no authority imposing a duty upon the City to inform a real estate developer of its right to appeal a decision by the City Engineer. In the absence of such a duty, an estoppel cannot be based on mere silence. Generally speaking, mere silence on the part of a party
will not create an estoppel unless he was under some obligation to speak, and a party invoking such estoppel must show that it was the duty of the other to speak, and that he has not only been induced to act by reason of such silence, but that the other had reasonable cause to believe that he would so act.
