On June 23, 2016, in Stewart Enterprises, Inc. v. City of Oakland, __ Cal.App.4th __ (2016) (Case No. A143417), the Court of Appeal for the First Appellate District issued an important decision dealing with whether a new legislative enactment may constitutionally deprive a landowner of a vested right conferred by local ordinance. The case arose out of a May 2012 building permit the City of Oakland issued for the construction of a controversial crematorium and the City’s later enactment of an emergency ordinance purporting to require a conditional use permit on new crematoria, including any crematoria that have obtained building permit for which rights to proceed have not yet vested under state law.

The project applicant had taken steps to confirm with City staff that the proposed use was lawful in the relevant zoning district. Having obtained the required zoning clearance from the City and the further approval of the Bay Area Air Quality Management District, the applicant purchased the property and took other steps to open the crematorium. By the time the applicant obtained the building permit, it had invested a total of approximately $2 million.

When the permit was issued, Oakland’s municipal code had a provision (repealed in 2013) that provided in relevant part, “Whenever any subsisting building permit . . . has been lawfully issued beforehand, . . . neither the original adoption of the zoning regulations nor the adoption of any subsequent rezoning or other amendment thereto shall prohibit the construction, other development or change, or use authorized by said permit[.]” This provision conveys a vested right by shielding the holder of a lawfully issued building permit from having to comply with any subsequently adopted zoning regulations if such regulations would “prohibit the construction . . . authorized by said permit.”

Five days after the City issued the building permit for the crematorium, the City Council passed an emergency ordinance requiring a conditional use permit to operate any new crematorium. The ordinance also provided, essentially, that even if a building permit has already been issued, any project that has not yet obtained vested rights under state lawcannot proceed without first obtaining a CUP.

The day after the hearing on the emergency ordinance, the City’s planning director sent the crematorium applicant a letter stating that the emergency ordinance applied to its project. The letter also said the applicant could not proceed with the development or establishment of the crematorium in reliant on the building permit or otherwise without first obtaining a CUP.

The applicant appealed the planning director’s determination to the Planning Commission, which denied the appeal on a 3-2 vote. The applicant then filed suit (note that in Oakland certain appeals stop at the Planning Commission and thus need not be considered by the City Council), alleging 11 causes of action, including impairment of vested rights under either the local vesting ordinance or state law. The trial court sustained the City’s demurrer to the applicant’s vested rights claim under state law, and following subsequent litigation on other claims granted the applicant’s petition for writ of administrative mandamus based on a vested right under the local vesting ordinance.

The City then appealed, arguing that (1) the applicant had no vested right, (2) even if the applicant did have a vested right, it was not impaired, and (3) even if the applicant had a vested right that was impaired, the impairment was supported by substantial evidence. The court of appeal’s analysis was guided by existing law regarding the general authority governmental agencies have to apply new laws retroactively where the intent to do so is apparent. Retroactive application may be unconstitutional, however, if it deprives someone of a vested right without due process.

In California, vested rights may be obtained under the common law if the party “has performed substantial work and incurred substantial liabilities in good faith reliance on a permit issued by the government.” Avco Community Developers, Inc. v. South Coast Regional Com., 17 Cal.3d 785, 791 (1976).  Certain state statutes also confer vested rights based on development agreements and vesting tentative maps. In addition, local ordinances may confer vested rights earlier than available under Avco.

Applying the foregoing law, the court of appeal rejected the City’s argument that the CUP requirement for new crematoria imposed by the emergency ordinance trumped any right the local vesting ordinance may have otherwise conveyed. Although the City relied on various canons of statutory interpretation and cases supporting its general authority to impose a CUP requirement and override preexisting legislation through an emergency ordinance, it failed to explain why the local vesting ordinance conferred a vested right on the applicant when the building permit was issued.

The court of appeal also rejected a clever – perhaps too clever – City argument that even if the applicant had a vested right in the building permit, the application of the emergency ordinance to the project did not impair that right because requiring a CUP did not amount to “prohibiting” the crematorium’s construction. In essence, the City argued that the emergency ordinance merely required additional discretionary review and did not amount to a prohibition on construction. The court of appeal was not persuaded, reasoning that to impose such a condition on a building permit is to prohibit the project until the property owner satisfies the condition. The CUP application can be denied, and such denial would plainly prohibit the applicant from completing the construction allowed by the building permit.

Finally, the court of appeal rejected the City’s argument that impairing the applicant’s vested rights was justified because the impairment was sufficiently necessary to the public welfare. The emergency ordinance’s impairment of the applicant’s vested right was not justified unless the ordinance involved an extraordinary exercise of the City’s police power required to address “a menace to the public health and safety or a public nuisance.” Davidson v. County of San Diego, 49 Cal.App.4th 639, 649 (1996). There was no evidence in the record of any threat to the public welfare that was serious enough to satisfy this legal standard. Vested rights are immune to ordinary police power regulations because they are not directly related to danger or potential danger to the health and safety of the public.