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Pacific Shores Properties, LLC v. City of Newport Beach

United States Court of Appeals, Ninth Circuit

September 20, 2013

Pacific Shores Properties, LLC, a California limited liability company; Alice Conner; Sean Wiseman; Terri Bridgeman, Plaintiffs-Appellants,
v.
City of Newport Beach, a California municipal corporation, Defendant-Appellee. Andrew Blair, Plaintiff, Newport Coast Recovery LLC, a California Limited Liability Company; Yellowstone Women's First Step House, Inc., Plaintiffs-Appellants,
v.
City of Newport Beach, a California municipal corporation, Defendant-Appellee.

Argued and Submitted November 6, 2012—Pasadena, California.

Appeal from the United States District Court for the Central District of California D.C. Nos. 8:08-cv-00457-JVS-RNB, 8:09-cv-00701-JVS-RNB James V. Selna, District Judge, Presiding

COUNSEL

Elizabeth Brancart (argued) and Christopher Brancart, Brancart & Brancart, Pescadero, California; and Steven G. Polin, Law Offices of Steven G. Polin, Washington, D.C.; for Plaintiffs-Appellants.

T. Peter Pierce (argued), Saskia T. Asamura, and Toussaint S. Bailey, Richards Watson & Gershon, P.C., Los Angeles, California; and Aaron Harp, City Attorney of Newport Beach, Newport Beach, California; for Defendant-Appellee.

Thomas E. Perez, Assistant Attorney General, Dennis J. Dimsey, Teresa Kwong (argued), United States Department of Justice, Civil Rights Division, Appellate Section, Washington, D.C., for Amicus Curiae United States.

Chris M. Amantea and Alexandrea H. Young, Hunton & Williams LLP, Los Angeles, California; and Paula D. Pearlman, Shawna L. Parks, and Umbreen Bhatti, Disability Rights Legal Center, Los Angeles, California, for Amici Curiae Disability Rights Legal Center, Disability Rights California, Western Center on Law and Poverty, and Disability Rights Education & Defense Fund.

Kira L. Klatchko and Jeffrey V. Dunn, Best Best & Krieger LLP, Indian Wells, California, for Amicus Curiae League of California Cities.

Before: Alex Kozinski, Chief Judge, Stephen Reinhardt, and Sidney R. Thomas, Circuit Judges.

SUMMARY[*]

Housing Discrimination

The panel reversed the district court's orders granting summary judgment in favor of the City of Newport on claims that a City ordinance violated the Fair Housing Act, the Americans with Disabilities Act, the California Fair Employment and Housing Act, and the Equal Protection Clause by having the practical effect of prohibiting new group homes for recovering alcoholics and drug users from opening in most residential zones.

The panel held that the district court erred in disregarding the evidence that the City's sole objective in enacting and enforcing its ordinance was to discriminate against persons deemed to be disabled under state and federal housing discrimination laws. The panel held that the plaintiffs were not required to identify similarly situated individuals who were treated better than themselves in order to survive summary judgment. It held that where there is direct or circumstantial evidence that the defendant has acted with a discriminatory purpose and has caused harm to members of a protected class, such evidence is sufficient to permit the protected individuals to proceed to trial under a disparate treatment theory.

The panel also held that the district court erred in concluding that the plaintiffs failed to create a triable issue of fact as to whether the losses that their businesses suffered were caused by the enactment and enforcement of the ordinance when the plaintiffs presented evidence that they experienced a significant decline in business after the ordinance's enactment, that the publicity surrounding the ordinance greatly reduced referrals, and that current and prospective residents expressed concern about whether the group-home plaintiffs would close. In addition, the panel held that the costs borne by the plaintiffs to present their permit applications and the costs spent assuring the public that they were still operating despite the City's efforts to close them were compensable. Finally, the panel held that the district court erred in dismissing one plaintiff's claim for emotional distress, but correctly dismissed another plaintiff's similar claim.

OPINION

REINHARDT, Circuit Judge:

Prior to 2008, "group homes"—i.e., homes in which recovering alcoholics and drug users live communally and mutually support each other's recovery—were generally permitted to locate in residential zones in the City of Newport Beach ("the City") and they did so freely.[1] By 2008, a number of residents of the City launched a campaign to restrict or eliminate group homes in their neighborhoods. After enacting several moratoria, the City enacted an Ordinance ("the Ordinance") which had the practical effect of prohibiting new group homes from opening in most residential zones. Even in the few areas where they were permitted to open, new group homes were required to submit to a permit process. Existing group homes also had to undergo the same permit process in order to continue their operations. Among the factors to be considered when granting or denying a permit to any group home was the number of other such facilities in the neighborhood.

On its face, the Ordinance did not single out group homes; persons recovering from addiction are protected from housing discrimination under state and federal antidiscrimination laws. Instead, the Ordinance facially imposed restrictions on some other types of group living arrangements as well. At the same time, the City did not impose similar regulations on properties rented by homeowners to vacationing tourists, despite the fact that such rental properties may cause similar social problems as group homes. On advice of counsel, the City had initially planned to regulate such rental properties in order to avoid the appearance of discriminating against group homes, but it backed down from doing so in the face of opposition from a number of City residents.

Taken in the light most favorable to the non-moving party, Plaintiffs' evidence shows that the City's purpose in enacting the Ordinance was to exclude group homes from most residential districts and to bring about the closure of existing group homes in those areas. The evidence also shows that the Ordinance regulated other types of group residential arrangements primarily for the purpose of maintaining a veneer of neutrality. Several existing group homes, which, as a result of the Ordinance, were required to apply for a use permit in order to continue operating in residential areas, sued the City, alleging that the Ordinance discriminated against them as facilities that provide housing opportunities for disabled individuals recovering from addiction. The district court acknowledged the evidence that the City acted with a discriminatory motive but found that evidence "irrelevant" because, it stated, the City had not treated group homes any worse than certain other group living arrangements.

We reverse and hold that the district court erred in disregarding the evidence that the City's sole objective in enacting and enforcing its Ordinance was to discriminate against persons deemed to be disabled under state and federal housing discrimination laws. Although plaintiffs in an antidiscrimination lawsuit may survive summary judgment by identifying similarly situated individuals who were treated better than themselves, this is not the only way to demonstrate that intentional discrimination has occurred. Where, as here, there is direct or circumstantial evidence that the defendant has acted with a discriminatory purpose and has caused harm to members of a protected class, such evidence is sufficient to permit the protected individuals to proceed to trial under a disparate treatment theory. This is no less true where, as here, the defendant is willing to harm certain similarly-situated individuals who are not members of the disfavored group in order to accomplish a discriminatory objective, while preserving the appearance of neutrality.

We also hold that the district court erred in concluding that the Plaintiffs failed to create a triable issue of fact as to whether the losses that their businesses suffered were caused by the enactment and enforcement of the Ordinance. The Plaintiffs presented evidence that they experienced a significant decline in business after the Ordinance's enactment, that the publicity surrounding the Ordinance greatly reduced referrals, and that current and prospective residents expressed concern about whether the group home Plaintiffs would close. By requiring the Plaintiffs to prove more, the district court failed to draw all reasonable inferences in their favor, as it was required to do at summary judgment. In addition, we hold that the costs borne by the Plaintiffs to present their permit applications and the costs spent assuring the public that they were still operating despite the City's efforts to close them are compensable. Finally, we hold that the district court erred in dismissing Plaintiff Wiseman's claim for emotional distress, but correctly dismissed Plaintiff Bridgeman's similar claim.

Factual Background

I

Newport Beach ("the City") is a Southern California beachfront community with about 80, 000 residents and is one of the wealthiest cities in the United States.[2] In the late 1990s "group homes" began opening in increasing numbers in the City, particularly in the beachfront neighborhoods of West Newport and Balboa Park. Group homes are residential facilities in which individuals recovering from drug and alcohol addiction temporarily reside. They provide a communal living environment in which residents help each other to recover from their addictions. In order to preserve a substance-free environment, group homes limit occupancy to persons who are sober; a resident who uses drugs or alcohol is immediately evicted. Because individuals recovering from addiction need to stay for varying lengths of time, they do not typically sign written leases. Typically, group home operators meet with and screen potential residents in advance to ensure that they are serious about pursuing a sober lifestyle.

By April 2007, the City contained 73 group homes, 48 of which were licensed treatment facilities and 25 of which were unlicensed sober houses.[3] At that time the City also had 801 outstanding short-term lodging permits, which were issued to owners of properties that were regularly offered for rental for short periods of time. These homes are usually rented for profit for a period of 30 days or fewer to tourists who elect Newport Beach as a beach vacation destination. Like group homes, short-term lodgings cater to a revolving clientele that can cause strains on neighborhood resources. In Newport Beach, "short term lodgings" are generally referred to as "vacation homes, " and we use the terms interchangeably.

The three group home Plaintiffs, Pacific Shores Properties LLC ("Pacific Shores"), Newport Coast Recovery LLC ("NCR"), and Yellowstone Women's First Step House, Inc. ("Yellowstone") (collectively, "the Group Homes") were part of the influx of group homes into Newport Beach during the mid-to-late 1990s and the early 2000s. The individual Plaintiffs are, respectively, one of the owners and two former residents of Pacific Shores. Pacific Shores and Yellowstone operate unlicensed sober houses, while NCR is a state-licensed facility. Each Group Home spent hundreds of thousands of dollars purchasing and renovating the homes it operates.

The increasing number of group homes in Newport Beach generated escalating hostility on the part of some City residents who, in a series of public meetings, repeatedly described the persons in recovery as "not true handicapped, " "criminals, " "gang members, " and "druggies, " among other derogatory terms.[4] In response to these concerns, the City passed a series of moratoria in 2007—Ordinances 2007-8, 2007-10, and 2007-16 (collectively, the "Moratoria")— followed by a new permanent zoning Ordinance 2008-5 ("the Ordinance"). Because the City's intent in passing these measures is central to this appeal, we recount their history in detail.

II

The City's attempts to formally address group homes began at a City Council meeting on January 23, 2007. At that meeting, members of the public expressed their displeasure with group homes and submitted a petition signed by 88 residents asking the City Council to address the issue. Shortly before that meeting, in an email to a concerned citizen, then-Mayor Rosansky wrote, "I suspect that these [group home] facilities do nothing to really solve the problem but only serve as wherehouses [sic] for alcoholics and drug addicts until they really hit bottom."

The City Council decided to form an Intense Residential Occupancy Committee ("IROC") "to review and understand the state and federal laws and regulations that limit [the] City's ability to regulate" and "to research and identify solutions to the problems and make . . . recommendations to the [C]ity [C]ouncil for changes to regulations applicable to all residential uses in a manner that preserves the residential character of our neighborhoods." Eight members were appointed to the IROC, including then-Mayor Rosansky, another council member, and Planning Commissioner Michael Toerge, as well as several private citizens.

The IROC's work culminated in a proposed ordinance that imposed a moratorium on establishing or operating any new "transitory uses" in a residential district for a period of 45 days, including group homes and short term lodgings. Angry citizens protested the freeze on the latter category, i.e., vacation homes. Craig Batley, a realtor and a member of the IROC, e-mailed City Council members to express the view that "the focus needs to be on Group Homes and only Group Homes." At a City Council meeting on April 24, 2007, citizens submitted a 400-signature petition against including short term lodgings in the moratorium. The City nevertheless enacted the moratorium as drafted. In a newspaper article published shortly thereafter, the City Attorney expressed the view that regulating only group homes would be discriminatory absent a showing that they caused different social problems than short-term lodgings.

In order to demonstrate that group homes did cause different social problems than vacation homes, the City conducted a citizen survey on the respective impacts of each type of housing. The City had never conducted a survey in connection with legislation before. The survey was distributed to four neighborhoods, three of which were the "[n]eighborhoods that seemed to generate the most complaints about [group homes]." One citizen opposed to group homes had one hundred surveys left on her doorstep to personally distribute.

The City Attorney prepared a report summarizing the 47 survey responses the City received and recommending that the City Council lift the moratorium with respect to vacation homes. The City Attorney's report also suggested amending the City Code to separately address problems caused by short-term lodgings, although the proposed amendments were never enacted. On May 30, 2007, the City Council passed Ordinance 2007-10 ("the revised Moratorium"), which followed the report's recommendation to lift the freeze on short-term lodging permits, but continued to prohibit new group homes. The revised Moratorium was renewed for an additional year on October 30, 2007. The district court found that the revised Moratorium was facially discriminatory because it singled out group homes for adverse treatment.

Around spring or fall of 2007, the City created an "Interdepartmental Group Homes Task Force, " headed by Assistant City Manager David Kiff to "verify" the number and location of group homes in the City, and to enforce code violations against them, including violations of the then-applicable moratorium. The City hired James Sinasek to work with Kiff. During the second half of 2007, Sinasek investigated group homes by searching the internet to locate them and posing as a potential client. He visited suspected group home sites, observed the properties, and photographed residents, vehicles, and license plates at or around the properties. Both Kiff and Sinasek attended meetings at the homes of members of the Concerned Citizens of Newport Beach ("CCNB"), a citizen advocacy group opposed to group homes, at which CCNB members provided lists of additional suspected group home sites for Kiff and Sinasek to investigate.[5] As a result of this investigation, three group homes, including Pacific Shores, were cited for violating the revised Moratorium.

Meanwhile, City officials worked to amend the City's municipal zoning code. At a Planning Commission meeting on June 21, 2007, the City Planner and outside counsel, Goldfarb & Lipman ("Goldfarb") presented a draft ordinance to the Commission. The draft regulated both group homes and short-term lodgings because Goldfarb advised that doing so was necessary to avoid enacting an unlawful discriminatory ordinance. Commissioner Toerge, a member of the IROC, argued that the City needed to "be more aggressive" because it was "inundated" with group homes; he endorsed an alternate draft prepared by attorneys employed by the CCNB. Goldfarb subsequently prepared a memorandum explaining why the CCNB's proposed ordinance would be discriminatory.

Nonetheless, the City Planner prepared a revised ordinance that did not regulate short-term lodgings. On September 20, 2007, an attorney from Goldfarb testified to the City Council that not regulating vacation homes might raise concerns about discrimination, and stated that "[t]here are still other non-conforming uses that are not necessarily residential care facilities [i.e., group homes]. We seem to not know exactly how many of those there are . . . but I think you grasp the situation that it does—it does change the overall impression." Most public comments from City residents expressed frustration that the Commission had rejected as facially discriminatory the CCNB's more aggressive ordinance. Commissioner Toerge suggested that the Commission should not be considering legal discrimination concerns: "I mean save that for the courtroom." The Planning Commission approved the revised draft.

While the Planning Commission was considering drafts of the Ordinance, the City Council formed an Ad Hoc Committee on Group Residential Legal Review whose sole purpose was to replace Goldfarb, the firm advising the City that failure to regulate short-term lodgings would be discriminatory, with new special counsel. This Committee's work resulted in the city hiring new counsel, Richards, Watson, & Gershon PC, the firm that represents the City in this appeal.

On October 9, 2007, the City Council formed an additional Ad Hoc Committee on Group Residential Uses to work with new counsel on revising the draft ordinance that had been recommended by the Planning Commission. The committee was chaired by Council Member Henn and included two other council members. No such Committee ...


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