California Court of Appeal Affirms Powerful Litigation Tool for Defending Housing

One of the key problems contributing to California's housing crisis is that it is relatively easy for housing opponents to file litigation challenging housing approvals, and even a completely meritless lawsuit can cause years of delay in the building of new homes. Delay is costly for all housing developments, but especially for affordable housing projects dependent upon time-limited funding sources, where delay alone is often sufficient to kill a housing project entirely.¹ "Not in my backyard" housing opponents know this well, and they also know that as a general rule, anti-housing plaintiffs are rarely made to cover the costs their lawsuits shift onto affordable housing providers.

Section 529.2 of the Code of Civil of Procedure (Section 529.2) provides an important exception to the general rule. When a lawsuit is filed against an affordable housing approval, the law authorizes the proponent of the housing to file a motion "for an order requiring the plaintiff/petitioner to furnish an undertaking as security for costs and damages that may be incurred as a result of delay in carrying out the project," up to a maximum of $500,000.² To invoke the law:

• The housing must contain enough affordable housing to qualify for the Density Bonus Law (for example, 10 percent of homes for lower-income or moderate-income households, or 5 percent for very low income households).
• Either the plaintiff's act of bringing the litigation or of seeking certain relief such as an injunction will delay or prevent the project.
• Any one of the following circumstances is present: the plaintiff brought the lawsuit a) "in bad faith," b) "vexatiously," c) "for the purpose of delay," or d) "to thwart the low- or moderate-income nature" of the project.³
• The plaintiff will not suffer "undue economic hardship" by being required to post the bond.⁴

Despite the fact that the law has been on the books since 1982, there was no published authority applying the law until the Save Livermore opinion.

The Save Livermore Litigation

In Save Livermore, housing opponents Save Livermore Downtown (SLD) sued the City of Livermore (City) for approving 130 affordable homes for lower-income households proposed by nonprofit housing developer Eden Housing Inc. (Eden). In response to a motion by Eden, and over SLD's objections, the trial court ordered SLD to post a $500,000 bond pursuant to Section 529.2 to cover some of the substantial costs SLD's litigation would impose on Eden. After SLD posted the bond, the trial court went on to reject all of SLD's claims on the merits, noting that "'[t]his is not a close case'" and that SLD's arguments about the City's failure to comply with the California Environmental Quality Act (CEQA) were "almost utterly without merit."⁵ SLD appealed to California's 1st District Court of Appeal, challenging both the trial court's order to post the bond and the decision on the merits.

The Court of Appeal Opinion Regarding the Bond

As the first decision interpreting and applying Section 529.2, the Court of Appeal's decision established the applicable standard of review when a plaintiff contests a trial court's order to post a Section 529.2 bond: "the decision whether to grant the bond is properly reviewed for abuse of discretion."⁶ A court will overturn the trial court's decision "only if it exceeded the bounds of reason or contravened the uncontradicted evidence."⁷ Here, the Court of Appeal rejected SLD's contention that the trial court's grant of a bond was an abuse of discretion and held that the trial court was within its discretion to find that Eden had met its burden under the statute.⁸

One of the key questions under Section 529.2 is how to determine what amount of bond would avoid an "undue economic burden" on the plaintiff. Usually, a plaintiff's financial wherewithal is not a matter of public record. Here, the Court of Appeal assumed – but importantly, did not decide – that Eden bore the burden to demonstrate that the bond would not pose an "undue economic burden" on SLD. Eden met this burden by noting that the organization was able to pay for expensive alternative plans for the project and had the resources to be "represented by a prominent private law firm."⁹

In addition, the Court of Appeal upheld the trial court's finding that "the action was brought for purpose of delay" without any direct evidence from SLD or its members stating that this was the organization's aim. Instead, the opinion affirmed it was permissible for the trial court to infer that delay was the litigation's purpose from the fact that SLD waited until the end of the statute of limitations to file its complaint, failed to prepare the administrative record for more than two months and made "substantive arguments" that "lack[ed] objective merit."¹⁰

Court Reaffirms Pro-Housing Standard of Review in the HAA

In addition to affirming the trial court's order requiring a bond, the Court also affirmed the trial court's decision on the merits. In so doing, Save Livermore became the latest Court of Appeal decision to reaffirm the pro-housing standard of review first confirmed in the landmark California Renters Legal Advocacy and Education Fund v. San Mateo decision of 2021.¹¹ (See Holland & Knight's previous alert, "Holland & Knight Wins Groundbreaking Case Affirming California's Housing Accountability Act," Sept. 13, 2021.) As the Save Livermore opinion puts it regarding the Housing Accountability Act (HAA): "the HAA has changed the legal landscape for considering SLD's challenges to the consistency findings. The HAA deems a housing project consistent with a plan's policy, standard, or requirement 'if there is substantial evidence that would allow a reasonable person to conclude' it is consistent."¹² Since Eden's project is an affordable housing project protected by the HAA, the Court of Appeal applied this standard to review of the City's approval of Eden's project and concluded that SLD failed to meet its burden to prove that no "reasonable person could find the project consistent" – and, in fact, that SLD's challenge would also have failed under the more general "abuse of discretion" standard.¹³ In fact, as set forth above, the Court of Appeal found the challenge so meritless that it supported the Court's view that the litigation was likely brought for the purpose of delay.¹⁴

Court of Appeal Publishes Opinion, Supreme Court Denies Review

Although the Court of Appeal did not initially publish its opinion, several housing advocacy organizations filed letters requesting the court consider doing so. Holland & Knight was honored to have the opportunity to represent a coalition of California's leading affordable housing advocacy organizations in seeking publication. In response, the Court of Appeal entered an order publishing the opinion. When the California Supreme Court later denied SLD's petition for review, the opinion's status as a citable precedent was confirmed.

Conclusion and Key Takeaways

Holland & Knight had represented housing developers invoking this and similar housing litigation bond requirements for several years before the Save Livermore opinion. But the existence of a published opinion affirming the opinion and applying Section 529.2 is likely to give courts and practitioners greater confidence in their ability to rely upon the law. Not every challenge to a housing development approval will present an opportunity to invoke Section 529.2, but many will, and housing developers and public agencies should consider the best way to defend affordable housing projects from litigation at an early stage.

One of the most important takeaways of the Save Livermore opinion is that it confirms that the Section 529.2 bond is not limited to situations in which plaintiffs bring actions in "bad faith" or "vexatiously" – as some other laws are. Instead, Section 529.2 applies even when litigation is brought for the purpose of delay or to actions where opponents are motivated to thwart the project's low- or moderate-income character.

In addition, the Save Livermore court affirmed that relatively circumstantial evidence can be sufficient to allow a housing developer to establish that litigation was brought for a proscribed reason or to establish what bond amount would be an "undue burden." Despite this, more direct evidence of a plaintiff's goals or finances is often even more persuasive, and so housing proponents should weigh carefully on the facts of a given case whether more evidence supporting the bond should be sought through discovery.

There remain several open questions about the Section 529.2 bond and potential legislative fixes that may be considered in the future – such as which party bears the burden of proving the financial wherewithal of a housing opponent. But for now, the law stands as a very effective tool to defend affordable housing projects from "not in my backyard" challenges – now with published authority to back it.

For more information about how to use this law or others to protect housing project approvals, contact the authors or your Holland & Knight West Coast Land Use and Environment Group attorney.

Notes

¹ See, e.g., Christopher S. Elmendorf & Timothy G. Duncheon, When Super-Statutes Collide: CEQA, the Housing Accountability Act, and Tectonic Change in Land Use Law, 49 Ecology L. Q. (forthcoming 2023) (manuscript, at 12) ("simple act of filing a CEQA claim" can be "enough to put a project on ice" because "lenders generally won't finance a project until any legal claims against it have been resolved").

² Save Livermore Downtown v. City of Livermore (2022) 87 Cal.App.5th 1116, 1135, review denied (Apr. 19, 2023) (citing Code Civ. Proc., § 529.2, subd. (a)).

³ Code Civ. Proc. §529.2(a).

⁴ Ibid.

⁵ Save Livermore Downtown, 87 Cal.App.5th at 1123 (internal quotations omitted).

⁶ Id. at 1135 (citing ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 14; Department of Fish & Game v. Anderson-Cottonwood Irrigation Dist. (1992) 8 Cal.App.4th 1554, 1560–1561). 

⁷ Ibid. (citing ABBA Rubber Co., 235 Cal.App.3d 1, at 17) (internal quotations omitted).

⁸ Id. at 1138.

⁹ Id.

¹⁰ Id.

¹¹ California Renters Legal Advoc. & Educ. Fund v. City of San Mateo (2021) 68 Cal.App.5th 820.

¹² Save Livermore Downtown, 87 Cal.Appp.5th at 1130 (quoting Gov. Code § 65589.5, subd. (f)(4)).

¹³ Id.at 1125-26.

¹⁴ Id. at 1138.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.