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High-Stakes Courtroom Losses Haunt City Council

Property Rights Case Could Cost City Seven Figures, and Expensive Vacation Rental Appeal No Day at the Beach, Either

Theo Kracke speaks at City Council Dec. 8, 2015. | Credit: Paul Wellman

Santa Barbara City councilmembers met in closed session this week for a collective head scratch over a big-ticket loss involving a property rights case that appears to have serious ramifications for how the city deals with sea-level rise in the years to come. Last month, Judge Thomas Anderle ruled that the City Council’s refusal to allow Thomas Felkay to build the three-bedroom home he proposed for blufftop property he bought on Camino de la Luz in 2006 constituted a “taking” for which he must be compensated. 

City Hall denied Felkay the necessary permits, citing a 1978 mudslide that destroyed the house not just on the property itself, but also on the property next door. Two years ago, Felkay sued, claiming he was denied any economic use of his property. City Hall countered he could still use the property “to picnic, swim, camp in a tent or live in movable trailer.” Even with the mudslide-induced restrictions, city planners asserted, Felkay could still develop 276 square feet of his property. 

In a 35-page ruling, Anderle made clear he didn’t buy the city’s position. Felkay, he ruled, had “lost all economically productive or beneficial use of the property.” Still to be determined is how much that property is worth. Felkay — who specializes in buying and developing environmentally challenging properties — testified he spent $850,000 to buy the land in 2006 and another $1.5 million trying to get the necessary city approvals. That does not include his attorney’s fees, for which City Hall will be liable. Calonne estimated those costs would likely run into “the seven figures.”

Whether the council opts to appeal has yet to be seen. “We face a Hobson’s choice,” said City Attorney Ariel Calonne, explaining that City Hall finds itself caught between contradictory requirements imposed by the California Coastal Act and the U.S. Constitution. The Coastal Act, he said, requires cities to prevent development from occurring on topography not safe or suitable for such development, but the Constitution requires property owners to be compensated. Reconciling these two for “the thousands of situations” he anticipates City Hall will encounter as a result of sea-level rise, Calonne said, “could prove to be a very expensive proposition.”

In another significant courtroom loss — this one involving City Hall’s ability to initiate enforcement actions against unpermitted vacation rentals — the council authorized the expenditure of $75,000 to hire outside legal counsel to wage a legal appeal. Earlier this year, vacation rental operator Theo Kracke — who argued City Hall needed a coastal development permit to launch proactive enforcement actions against vacation rentals in the city’s coastal zone — won a major legal victory. 

The courts found that City Hall could initiate enforcement actions against unpermitted vacation rentals, but only upon complaint. Four years ago, the City Council unanimously passed an outright citywide ban against vacation rentals except in very specific areas. City Attorney Calonne had launched a proactive enforcement campaign, seeking out possible violators on the social media sites where they advertise and taking legal action. 

Kracke, a major operator, fell within Calonne’s legal crosshairs and fought back. He argued the city’s policy was at odds with the California Coastal Commission’s policy that the coast be made economically accessible to visitors of all income levels, not just those who can afford waterfront hotels and motels. The council’s more proactive enforcement strategy, he maintained qualified as a “project,” and as such, needed the blessing of the Coastal Commission.

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