Editor’s Note: This story was updated on 3/22/21 to make several clarifications and reflect additional comments from attorney Joseph Liebman.

Santa Barbara City Battles over Vacation Rentals and Coastal Housing

Land Owner Wins One Case, City Hall Wins Another

Santa Barbara City Attorney Ariel Calonne | Credit: Daniel Dreifuss (file)

It may not have been the clash of the titans, but the squaring off between attorney Joseph Liebman and Santa Barbara City Attorney Ariel Calonne might be the next best thing when it comes to deciding how much City Hall can regulate land-use near, or along, the city’s waterfront. 

Based on the dueling press releases issued late this week by these two legal heavyweights, Liebman and Calonne have clearly transcended the merely professional and have now taken on an edge of personal animus. 

Both cases are so complicated that even their respective wrinkles have wrinkles. Boiled down to simplest terms, Liebman and Calonne each won one and lost one. Naturally, it’s not that simple. 

Liebman won what could be a landmark case that will likely cost City Hall $3.6 million plus attorney’s fees over the rights of a Mesa property owner — Thomas Felkay — to build on steep shoreline bluffs overlooking the ocean deemed by City Hall to be geologically unstable. At issue was how far from the edge of the cliff Felkay could build. Liebman noted that according to the city’s own experts, Felkay could build safely on his parcel if he built upon a caisson foundation. This would have contributed to the stability of his neighbors as well.


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Calonne won a significant but potentially pyrrhic victory that upholds City Hall’s ordinance limiting where vacation rentals are allowed to operate within city limits. This decision — issued by Superior Court Judge Thomas Anderle — could well be rendered moot, however, after an appeals court panel in Ventura decides whether to limit City Hall’s authority to enforce its short-term rental ordinance.

Coincidentally, the same day the Court of Appeal in Ventura issued its $3.6 million ruling in favor of Thomas Felkay, it also heard arguments on that enforcement case.

The Felkay case, it appears, has been a legal train crash long in the making. It involves a postage stamp of a piece of land on the Mesa’s Camino de la Luz that Felkay purchased in 2006 for $850,000. The land consists of a skinny, long driveway that slopes down from the street to a bluff-top parcel overlooking the ocean. Felkay initially proposed building a three-story, 3,101-square-foot home, then modified that to 2,789 square feet. According to the city’s rules and regulations, the land was located at an elevation deemed geologically too unstable to allow that degree of development. The Planning Commission shot down his proposal, and it got shot down again when he appealed to the City Council. 

The issue of “takings” loomed large in these discussions. City planning staff suggested the way the project could be approved, noting it complied with all pertinent building standards except the one governing the distance from a blufftop. From the outset, the council was warned that denial would subject City Hall to a potential lawsuit.

Felkay did much better taking his case to court in 2017. He argued that the city had effectively condemned his property by denying him any economically viable land use. He should be paid accordingly, argued his attorney, Joseph Liebman. In 2019, Judge Anderle agreed with Felkay. In a separate jury trial, it was determined Felkay’s land was worth $2.4 million plus attorney’s fees.

The council opted to appeal again, arguing that the rulings placed City Hall in the untenable position of having to approve developments unsafe and incompatible with the city’s land-use requirements. What happens, Calonne asked, when the sea level rises and threatens other coastal properties. Will City Hall be precluded from restricting development then, too, for fear of having to pay the costs of inadvertent condemnation? Had the council allowed Felkay to build and his home fell into the ocean, Liebman stated, City Hall would have borne no legal responsibility.

The arguments proffered by the attorney hired by City Hall to handle the case in front of the Court of Appeal, however, were much more technical and administratively wonky. The city argued that Felkay’s lawsuit had been premature because he had not yet exhausted all his administrative remedies. For example, Felkay should have submitted alternative plans that might address its geologic concerns. The Court of Appeal rejected this, agreeing with Felkay and his attorney Liebman that there simply were no plans they could have possibly drawn up to address City Hall’s geological concerns; nothing could be built on that land. This time, the panel of appellate judges found the city would have to pay Felkay $3.6 million plus attorney’s fees, estimated to be in excess of $1 million. In addition, the council authorized the expenditure of $1.1 million to hire outside legal counsel to handle the Felkay case, bringing the city’s costs to nearly $6 million.

Liebman issued a press release on Thursday taking City Hall sternly to task. Felkay’s award, Liebman wrote, would have to come straight from the city’s general fund “at a time the City can ill afford to spend taxpayer’s money paying out damages to property owners. And this was completely and easily avoidable.”

Liebman blamed the council’s decision to pursue litigation directly on “poor advice” given to the council by City Attorney Calonne and City Administrator Paul Casey. With an in-your-face conclusion uncharacteristic of Santa Barbara’s more genteel courthouse culture, he wrote: “Bad behavior has consequences. This is the end of the road and the City will pay for its poor decisions.” 

The irony here is that Casey and Calonne reportedly advised the council to avoid litigation at the very outset of this conflict. According to councilmembers present during these closed-door deliberations, Calonne and Casey both suggested the council approve the project because it was likely a neighbor would appeal to the Coastal Commission. This way the city could avoid litigation, and the Coastal Commission would, in all likelihood, stop the project.

Councilmembers rejected this on the grounds that private citizens should not be required to bear the costs of an appeal. Since these deliberations were privileged, neither Calonne nor Casey could confirm this account. Calonne did bristle at Liebman’s remarks, stating, “I’m not going to get down in the gutter with Mr. Liebman here, but he has no idea what advice I gave my clients. He can say whatever the hell he wants, but he has no idea what he’s talking about.”

The same day the Felkay ruling was released, Calonne announced a victory he’d won earlier in the year — in January — over the city’s right to restrict short-term rentals in various parts of the city. In this instance, it was Liebman suing City Hall again, but on behalf of Santa Barbara Inland and the Coastal Property Rights Association — two groups started by James Fenkner, a prominent community activist better known for his critique of the Santa Barbara school board’s support of ethnic equity. In this case, Fenkner owns a downtown income property that he’s used as a short-term rental.

At issue was the city’s effort to regulate vacation rentals on the grounds that they qualified as hotels under city ordinance. Fenkner and Liebman argued that the city’s hotel ordinance dated back to 1986, well before short-term rentals were an issue, and it had not been amended until March 2020. To limit vacation rentals this way, Fenkner argued, was arbitrary, capricious, outrageous, and egregious; it violated due process and constituted a violation of his constitutional rights.

Judge Anderle upheld the city’s ordinance, finding it relates “to legitimate governmental purposes, those of preserving housing, regulating growth, and ensuring compatibility of adjoining uses.” 

At Calonne’s instigation, the City Council voted last March to amend its hotel ordinance to explicitly include language relating to short-term rentals. At that council hearing, Fenkner and Liebman showed up to object, predicting that he would beat the city in court as he had many times before.

During the trial, Liebman enlisted testimony by the head of the California Coastal Commission, John Ainsworth, and a high-ranking deputy administrator, Steve Hudson, who argued that the city’s ordinance was invalid because it had not been vetted by the Coastal Commission.

The Coastal Commission has been critical of efforts to limit short-term rentals along the state’s coast, arguing that they provide affordable accommodations to state residents effectively barred from enjoying coastal access by the high price of most hotels. Judge Anderle dismissed this testimony as irrelevant, noting that the Coastal Commission itself — as a governmental agency — had opted to take no official action. Because of that, he argued, such testimony should be regarded as only an individual opinion. Calonne made much of Anderle’s statements on this score in his press release, noting, “We caught them red handed.” 

For the time being, the city’s short-term rental prohibition stands. But waiting in the wings is a Court of Appeal ruling — yet to be issued — about a case brought against the city by Theo Kracke, a short-term rental entrepreneur. If Kracke should prevail, it would severely limit the ability of local governments to enforce short-term rental ordinances.

Fenkner was acerbically dismissive of Anderle’s ruling. “This particular, very narrowly defined skirmish is over with Ariel Calonne taking home a worthless plastic trophy. Let’s see what happens with Theo Kracke’s appeal.”

It’s worth noting the city’s ordinance all but banning short-term rentals was passed unanimously with support even from conservative property-rights-minded councilmembers Randy Rowse and Dale Francisco. The ordinance was strongly endorsed by developer-banker Michael Towbes. All worried that vacation rentals threatened to further limit the city’s already tight housing stock. “The issue was housing then,” said Calonne, “and I hate to say, it still is.”

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