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HomeMy WebLinkAboutStaff Report 2509-5236CITY OF PALO ALTO CITY COUNCIL Monday, September 29, 2025 Council Chambers & Hybrid 5:30 PM     Agenda Item     17.CONFERENCE WITH CITY ATTORNEY-POTENTIAL LITIGATION Subject: Potential litigation regarding 156 North California Avenue, as set forth in letter(s) from Holland & Knight LLP dated September 3, 2025 Authority: Government Code Section 54956.9(d)(2); One case, as Defendant.   City Council Report Type: CLOSED SESSION Lead Department: City Attorney Meeting Date: September 29, 2025 Report #:2509-5236 TITLE CONFERENCE WITH CITY ATTORNEY-POTENTIAL LITIGATION Subject: Potential litigation regarding 156 North California Avenue, as set forth in letter(s) from Holland & Knight LLP dated September 3, 2025 Authority: Government Code Section 54956.9(d)(2); One case, as Defendant. No staff report. ATTACHMENTS Attachment A: September 3, 2025 Correspondence. 560 Mission Street, Suite 1900 | San Francisco, CA 94105 | T 415.743.6900 | F 415.743.6910 Holland & Knight LLP | www.hklaw.com Genna Yarkin +1 415-743-6990 Genna.Yarkin@hklaw.com Daniel R. Golub +1 415-743-6976 Daniel.Golub@hklaw.com Atlanta | Austin | Birmingham | Boston | Century City | Charlotte | Chattanooga | Chicago | Dallas | Denver | Fort Lauderdale Houston | Jacksonville | Los Angeles | Miami | Nashville | Newport Beach | New York | Orlando | Philadelphia | Portland Richmond | San Francisco | Seattle | Stamford | Tallahassee | Tampa | Tysons | Washington, D.C. | West Palm Beach September 3, 2025 Palo Alto Planning Department 285 Hamilton Avenue - 5th Floor Palo Alto, CA 94301 Re: Response to August 20, 2025 Correspondence, 156 N. California Avenue - App. 24PLN-00100 Dear All: As you know, we represent Midar Investment Co. LLC (the “Applicant”) in connection with its housing development application for 382 multifamily residential units under Application 24PLN-00100 (the “Project”) at 156 N. California Avenue (the “Project Site”) in Palo Alto (the “City”), California. The Project is proposed on an infill, transit-adjacent location that is ideal for the type of high-density development that California desperately needs, and the Project will contribute substantially to the City meeting its state-mandated affordable housing goals. As documented in previous communications, the Project (1) is a “housing development project” that is subject to the protections of the Housing Accountability Act (the “HAA”), inclusive of the “Builder’s Remedy,” and (2) is eligible for the California Environmental Quality Act (“CEQA”) exemption enacted with the June 30, 2025 adoption of Assembly Bill (“AB”) 130 (the “AB 130 CEQA Exemption”). The purpose of this letter is to respond to the City’s August 20, 2025 correspondence regarding the Project. As explained in the following Section, the Project does qualify for the AB 130 CEQA exemption, and the contrary interpretation set forth in the August 20, 2025 correspondence – and the City’s unlawful refusal to begin the tribal consultation process mandated by AB 130 – is unsupported by the statutory text and applicable precedential case law. In particular, the City’s contentions that AB 130 does not apply to “Builder’s Remedy 1.0” projects fails to recognize that in AB 130 the Legislature expressly provided that its exemption does in fact apply to both types of Builder’s Remedy Projects: 1.0 and 2.0 (as long as such projects are proposed on a site of less than five acres). It is for this reason that the Governor who signed AB 130, and the author of the bill, both understand AB 130 to provide a CEQA exemption for Builder’s Remedy 1.0 Projects. To that end, as detailed in Section II below, the Applicant will invoke the protections of Government Code Section 65589.5.1 (“AB 1633”) if the City maintains its present position. To Palo Alto Planning Department September 3, 2025 Page 2 the extent it proves necessary to litigate this question, any such litigation will be resolved under a standard of review that is highly favorable to the approval of housing. If the City does not reverse course, it will be subject to the substantial liability imposed by the HAA – including mandamus relief, awards of attorney’s fees, and potential fines – and could endanger its own compliance with Housing Element Law. We urge the City to avoid this course and to instead work with us on processing the development of this Project. The Applicant team remains, as before, committed and willing to work with City officials and stakeholders collaboratively on a Project that can be feasibly developed in a manner consistent with regional needs and local priorities. I. THE PROJECT QUALIFIES FOR THE AB 130 CEQA EXEMPTION. The City’s August 20, 2025 correspondence implicitly acknowledges that the Project meets all AB 130 criteria except one, and sets forth the City’s position that the Project is not eligible for the AB 130 CEQA Exemption because it does not satisfy AB 130’s requirement regarding consistency with applicable general plan and zoning standards. That consistency requirement states in full: The project is consistent with the applicable general plan and zoning ordinance, as well as any applicable local coastal program as defined in Section 30108.6. For purposes of this section, a housing development project shall be deemed consistent with the applicable general plan and zoning ordinance, and any applicable local coastal program, if there is substantial evidence that would allow a reasonable person to conclude that the housing development project is consistent. As explained in the Applicant’s August 6, 2025 correspondence to the City, and further developed through email correspondence, because the Project is a Builder’s Remedy project, it may not lawfully be required to comply with the City’s general plan and zoning standards, and any such standards are not “applicable” for purposes of AB 130’s consistency requirement. Thus, the Project satisfies this requirement. In its August 20, 2025 correspondence, the City posits that only Builder’s Remedy projects that meet the statutory definition set forth in HAA subdivision (h)(11) (i.e., those commonly known as “Builder’s Remedy 2.0” projects) can access AB 130. The City bases this position on its interpretation that HAA subdivision (f)(6)(D)(iii) – AB 1893’s “deemed consistent” provision for Builder’s Remedy projects – is only available for Builder’s Remedy 2.0 projects. In the City’s view, a Builder’s Remedy project can only satisfy AB 130’s consistency requirements by relying on HAA subdivision (f)(6)(D)(iii)’s “deemed consistent” language. And, because the City views this “deemed consistent” language as unavailable for “grandfathered” “Builder’s Remedy 1.0” projects, the City concludes that grandfathered Builder’s Remedy projects are categorically barred from accessing AB 130. Putting aside any arguments about what AB 1893 provides, the City is incorrect because subdivision (f)(6)(D)(iii)’s “deemed consistent” provisions are not required to access AB 130. This fact is apparent from the text and structure of AB 130 itself. Specifically, AB 130 refers separately and specifically to both pre-AB 1893, grandfathered Builder’s Remedy projects, and Palo Alto Planning Department September 3, 2025 Page 3 subsequent projects that meet AB 1893’s statutory definition of a “Builder’s Remedy project” when it provides that both types of projects can be eligible for the AB 130 CEQA exemption (as long as they are proposed on project sites of less than five acres): The project site or the parcel size for a builder’s remedy project, as defined in paragraph (11) of subdivision (h) of Section 65589.5 of the Government Code, or the project site or the parcel size for a project that applied pursuant to paragraph (5) of subdivision (d) of Section 65589.5 of the Government Code as it read before January 1, 2025, is not more than five acres.1 Grandfathered Builder’s Remedy projects such as the Project – i.e., those that “applied pursuant to paragraph (5) of subdivision (d) of Section 65589.5 of the Government Code as it read before January 1, 2025” – are expressly described as eligible for the AB 130 exemption. But of course, Builder’s Remedy projects are not designed to comply with otherwise-applicable local standards. Thus, under the City’s read of AB 130’s consistency requirements, such projects could never qualify for AB 130. If that were the case, however, then the Legislature would not have taken pains to specifically reference grandfathered Builder’s Remedy projects as eligible for AB 130 if located on a site of five acres of less. The fact that the Legislature did reference such projects indicates its understanding that those projects are eligible for AB 130. A contrary reading would render AB 130’s distinct reference to projects that “applied pursuant to paragraph (5) of subdivision (d) of Section 65589.5 of the Government Code as it read before January 1, 2025” a nullity, in violation of basic principles of statutory interpretation.2 AB 130’s consistency requirements must be read in a manner that gives harmony to the other statutory provisions. To that end, please be advised that Governor Newsom’s office has confirmed that the Governor and the author of the law share this understanding, as shown in the attached Exhibit A. The foregoing is fully dispositive, but we note further that this interpretation is also supported by legal precedent more than a decade old. Specifically, in Wollmer v. City of Berkeley (2011) 193 Cal.App.4th 1329, 1348, dealing with essentially the same language, the Court of Appeal held that general plan and zoning standards displaced by State Density Bonus Law were not “applicable” within the meaning of CEQA Guidelines Section 15332(a): The City properly applied the plain meaning of Guidelines section 15332, subdivision (a) to its own codes in a manner that was in harmony with the state’s density bonus law, and so applied, properly found that the project was exempt from CEQA. On its face the exemption only requires consistency with applicable general plan designations and policies and applicable zoning designations and regulations. (Guidelines, § 15332, subd. (a).) The density bonus statute in turn requires a waiver of development standards that physically preclude construction of a density-bonus 1 Pub. Res. Code § 21080.66(a)(1)(B) (emphasis added). 2 “An interpretation that renders statutory language a nullity is obviously to be avoided.” Williams v. Superior Court (1993) 5 Cal.4th 337, 357. Palo Alto Planning Department September 3, 2025 Page 4 qualifying project. (§ 65915, subd. (e)(1).) And the City’s own zoning ordinance generally requires the grant of a density bonus upon a complete application. (Berkeley Mun. Code, § 23C.12.050.A.) Taking these laws together as they operate in the context of a density bonus project, it is clear that the waived zoning standards are not ‘applicable’ and that the requirements of Guidelines section 15332, subdivision (a) were met.3 So too here. Considering AB 130’s consistency requirement language in the larger statutory context, it is plain that the City’s “general plan and zoning ordinance” standards are not “applicable” to Builder’s Remedy projects in a manner that would preclude those projects from accessing AB 130. The City’s August 20, 2025 correspondence purports to distinguish Wollmer on two bases. First, the City states that “Wollmer dealt with the affirmative waiver of development standards by the City of Berkeley pursuant to density bonus law and the city’s own municipal code. … By contrast, Palo Alto has not taken analogous action here.” The City’s reference to the “affirmative waiver of development standards” at issue in Wollmer seems to suggest that the City of Berkeley’s waiver of development standards was voluntary. Not so. State Density Bonus Law forbids local governments from applying development standards that would physically preclude construction of density bonus projects.4 Thus, the waiver granted by the City of Berkeley in Wollmer was compelled by law. Nor is it true that the City took no action to render its local standards inapplicable to builder’s remedy projects in this instance; the City affirmatively chose not to produce and adopt a legally-compliant housing element by the certification deadline. The City also purports to distinguish Wollmer with the argument that “the builder’s remedy has never purported to completely displace the City’s general plan and zoning code.” But nor were the development standards waived pursuant to State Density Bonus Law in Wollmer “completely displaced.” Rather, they were not “applicable” as to the Wollmer project because the Wollmer project could not be required to comply with those standards, even though those standards remained applicable to other projects. The same is true here. Further, the August 20, 2025 correspondence misconstrues the governing evidentiary framework. AB 130 states that, on the question of consistency with local standards, “a housing development project shall be deemed consistent with the applicable general plan and zoning ordinance, and any applicable local coastal program, if there is substantial evidence that would allow a reasonable person to conclude that the housing development project is consistent.”5 Thus, it is immaterial that the City disagrees about the applicability of certain standards to the Project. A reasonable 3 Wollmer v. City of Berkeley (2011) 193 Cal.App.4th 1329, 1348-49. 4 Gov. Code § 65915(e)(1) (“In no case may a city, county, or city and county apply any development standard that will have the effect of physically precluding the construction of a development…”). 5 Pub. Res. Code § 21080.66(a)(4)(A). The Legislature’s choice to impose a “reasonable person” on this question suggests a legislative intent to preclude highly-technical and uncharitable arguments (such as the City’s) about why a given project does not comply with applicable local standards. Palo Alto Planning Department September 3, 2025 Page 5 person could certainly reach a contrary conclusion, and the City cannot show otherwise. As such, the Project is deemed consistent with applicable general plan and zoning standards, and this qualifying criterion is satisfied. II. THE APPLICANT IS PREPARED TO INVOKE THE PROTECTIONS OF AB 1633 IF THE CITY DOES NOT RECOGNIZE THE AB 130 CEQA EXEMPTION. AB 1633 provides that local governments are subject to the substantial liability imposed by the HAA for refusing to recognize a housing project’s entitlement to access a CEQA exemption, where substantial evidence indicates that the project qualifies for that exemption.6 To effectuate these protections, AB 1633 provides a statutory process for adjudicating disputes regarding the applicability of a CEQA exemption. That statutory process begins with an applicant’s provision of written notice to the relevant agency.7 The time to provide such written notice is “35 days of the date that the local agency gave the applicant notice of the local agency’s determination” that a project does not qualify for a CEQA exemption.8 Unless informed otherwise, the Applicant will proceed on the assumption that the City’s August 20, 2025 correspondence represents its “notice of the local agency’s determination” that the Project does not qualify for the AB 130 CEQA Exemption. Thus, unless the City promptly informs the Applicant that it has withdrawn its position regarding the AB 130 CEQA Exemption, the Applicant will provide its AB 1633 notice to the City no later than September 24, 2025. We urge the City to take prompt action to avoid this outcome. Sincerely, HOLLAND & KNIGHT LLP Genna Yarkin Daniel R. Golub Will Sterling cc: Caio Arellano, Albert Yang - City Attorney’s Office 6 See generally Gov. Code § 65589.5.1. The Project satisfies the qualifying criteria for accessing AB 1633. 7 Gov. Code § 65589.5.1(a)(5). 8 Gov. Code § 65589.5.1(a)(5)(E). EXHIBIT A 1 From: Myles White <Myles.White@gov.ca.gov> Date: August 25, 2025 at 2:03:27 PM PDT To: mike.mollie@gmail.com Subject: AB 130 Hi Mike, Thanks for reaching out on this. After discussing with my colleague in the author’s office who worked with me on this bill (now statute), I can confirm our understanding is that the CEQA infill exemption applies to both Builder Remedy 1.0 projects and 2.0 projects, so long as the site is no more than 5 acres (the specific requirement for Builder Remedy projects utilizing this authority) and the project meets the other criteria in the bill. This provision is codified in Public Resources Code §21080.66 (see highlighted provision below). Myles --- SEC. 59. Section 21080.66 is added to the Public Resources Code, to read: 21080.66. (a) Without limiting any other statutory or categorical exemption, this division does not apply to any aspect of a housing development project, as defined in subdivision (b) of Section 65905.5 of the Government Code, including any permits, approvals, or public improvements required for the housing development project, as may be required by this division, if the housing development project meets all of the following conditions: (1) (A) Except as provided in subparagraph (B), the project site is not more than 20 acres. (B) The project site or the parcel size for a builder’s remedy project, as defined in paragraph (11) of subdivision (h) of Section 65589.5 of the Government Code, or the project site or the parcel size for a project that 2 applied pursuant to paragraph (5) of subdivision (d) of Section 65589.5 of the Government Code as it read before January 1, 2025, is not more than five acres. (2) The project site meets either of the following criteria: (A) Is located within the boundaries of an incorporated municipality. (B) Is located within an urban area, as defined by the United States Census Bureau. (3) The project site meets any of the following criteria: (A) Has been previously developed with an urban use. (B) At least 75 percent of the perimeter of the site adjoins parcels that are developed with urban uses. (C) At least 75 percent of the area within a one-quarter mile radius of the site is developed with urban uses. (D)For sites with four sides, at least three out of four sides are developed with urban uses and at least two-thirds of the perimeter of the site adjoins parcels that are developed with urban uses. (4)(A) The project is consistent with the applicable general plan and zoning ordinance, as well as any applicable local coastal program as defined in Section 30108.6. For purposes of this section, a housing development project shall be deemed consistent with the applicable general plan and zoning ordinance, and any applicable local coastal program, if there is substantial evidence that would allow a reasonable person to conclude that the housing development project is consistent. (B) If the zoning and general plan are not consistent with one another, a project shall be deemed consistent with both if the project is consistent with one. (C) The approval of a density bonus, incentives or concessions, waivers or reductions of development standards, and reduced parking ratios pursuant to Section 65915 of the Government Code shall not be grounds for determining that the project is inconsistent with the applicable general plan, zoning ordinance, or local coastal program. (5) The project will be at least one-half of the applicable density specified in subparagraph (B) of paragraph (3) of subdivision (c) of Section 65583.2 of the Government Code. (6) The project satisfies the requirements specified in paragraph (6) of subdivision (a) of Section 65913.4 of the Government Code. 3 (7) The project does not require the demolition of a historic structure that was placed on a national, state, or local historic register before the date a preliminary application was submitted for the project pursuant to Section 65941.1 of the Government Code. (8) For a project that was deemed complete pursuant to paragraph (5) of subdivision (h) of Section 65589.5 of the Government Code on or after January 1, 2025, no portion of the project is designated for use as a hotel, motel, bed and breakfast inn, or other transient lodging. For the purposes of this section, “other transient lodging” does not include either of the following: (A) A residential hotel, as defined in Section 50519 of the Health and Safety Code. (B) After the issuance of a certificate of occupancy, a resident’s use or marketing of a unit as short-term lodging, as defined in Section 17568.8 of the Business and Professions Code, in a manner consistent with local law.