Our thanks to Jacob Cremer for the heads-up on the Florida Court of Appeals’ decision in Ocean Palm Golf Club Partnership v. City of Flagler Beach, No. 5D12-4274 (May 30, 2014). Jacob did not post any analysis (undertstandable because his law firm is involved in the case) so we’ll add our two cents.
Here’s the BLUF: the city’s refusal to change the zoning on a 9-hole golf course and a surrounding parcel to allow residential development did not deprive the parcels of their value, and were not a taking.
Here’s the longer story. The case involved two parcels, one the golf course, and the other, a vacant parcel. At one time, they were a single parcel owned by a single owner, but by the time of the litigation, they had been subdivided and separately owned by two separate but related entities. Back in the day, the city and the owners entered into a development agreement to create a Planned Unit Development under which the vacant parcel would be turned into a condo complex, and the golf course would welcome the public.
Eventually, however, these plans went nowhere when the city rejected each of the owner’s specific plans for the condo, all of which involved high-rise or mutiple building development. Even after the development agreement expired in 2003, the owner made another much more modest proposal, scaling back the height and number of units. The city asked the owner to resolve some of the city’s “issues” with the proposal, but again, after being “unable to resolve the issues,” the owner abandoned the plan.
Eventually, the owners asked to downzone the property to single-family residential. But after public opposition, that too was denied by the city. The owners claimed the golf course never saw a stand-alone profit, and they purchased the property with the idea that income from the condo development and related golf course memberships would support the golf course. The course closed in 2008, and the lawsuit followed, asserting that the city’s refusal to rezone the property was a taking.
At trial, the developer introduced evidence that the property was not economically viable in its present state, arguing that the golf course parcel needed to be treated separately from the condo parcel. The city countered with testimony that the highest and best use of the land was as a golf course, asserting “that the golf course was profitable” after a real estate appraiser reviewed the 2005 tax return (who also admitted that “he had not considered whether it was economically feasible to rehabilitate and operate the golf course.”). The city also argued that the parcels needed to be considered as one, and not separately.
The city’s economist (Dr. Fishkind) “testified that, to a degree of economic certainty, even if the City had approved the Comprehensive Plan amendment, there would have been no change in the value of the parcels.” Slip op. at 10. Pretty much because the project would have come to market in a bad time generally, and these type of developments are always a tough thing, and thus he used “a very large discount rate.” Id. at 11. For more on the evidence of value, read the entirety of pages 10-12 of the slip opinion. To this non-economist, it seems awfully counterintuitive:
Dr. Fishkind was asked to consider a profit analysis. He distinguished net profits going forward from ultimate profits, which takes into account the investment costs. Net profits may not give owners an ultimate profit. Even if there is no ultimate profit, it makes no economic sense to do nothing with the property. Dr. Fishkind admitted that with the high costs already spent on the two parcels, there was “probably absolutely no development plan that would ever generate positive profit, given the cost and current market conditions and reasonable expectations about a development program and a discounting.”
Slip op. at 12. The trial court ruled in favor of the city, concluding that the refusal to go from recreational use to residential use did not deprive the owner of all economically beneficial use of the property, and thus was not a taking. The court treated the two parcels as a single tract with a single owner for purposes of its analysis. And it didn’t buy the owners’ contention that the golf course was not economically viable just because it was losing money:
In considering the 34-acre golf course standing alone, the Court finds there is an economic beneficial use. [Ocean Palm Golf] contends there is a 10-year history of losses for the property. [Ocean Palm Golf] cites to its 1999 through 2008 tax returns as proof that the property has no economic beneficial use. However, a review of the tax returns indicates the losses, in large measure, are a result of basis costs. The calculation of economic beneficial use is not akin to profitability, as basis costs should not be considered. When factoring out the deductions for interest and depreciation on the tax returns, they reveal there was a profit to [Ocean Palm Golf] in 2001, 2002, 2003, 2004, and 2005. This is so without considering other reasons why [Ocean Palm Golf] was losing money. The Court finds Dr. Fishkind’s opinion as to the economic viability of the golf course to be persuasive.
Slip op. at 13. See what we mean about counterintuitive?
The court of appeals saw the issue as whether the parcels could be treated as a single tract, and thus their economical viability be viewed together or separately. The court applied a three factor test — physical contiguity, unity of ownership, and unity of use — and determined the parcels could be treated as one (courts and lawyers seem to love “factor” tests, especially multi-factor tests, don’t they?). Once the appellate court agreed that the parcels were to be treated as one parcel, it had little difficulty affirming that Dr. Fishkind’s testimony was “competent, substantial evidence upon which the trial court properly relied.” Slip op. at 16.
What the opinion doesn’t mention is that even though Dr. Feelgood Fishkind concluded that the golf course was in fact “profitable,” it somehow ended up in foreclosure in 2013. The punch line to this story? Despite reservations, the city put in a bid at the auction, its bid was the high one, and it is now the proud owner of the golf course parcel. Funny how things work out, no?
One more thing that bothers us about this opinion. The court of appeals agreed that in some circumstances, a municipality’s denial of a change in zoning could lead to takings liability. The court cited two earlier opinions for that proposition, Tollius v. City of Miami, 96 So.2d 122 (Fla. 1957), and Kugel v. City of Miami, 206 So.2d 282 (Fla. App. 1968), which the opinion asserted held that if the character of the property changed, it would be a taking it the city doesn’t rezone it.
However, Tollius appears to be a case that involved spot-zoning and not takings at all, while Kugel focused on the refusal to rezone as an unreasonable exercise of the police power, and doesn’t say anything at all about whether the property was deprived of all beneficial use by the refusal to rezone. The Ocean Palm court concluded there was no taking because the golf course was to be used in exactly the same way that it had been, and it was merely the economic environment that had changed: “golf courses across the country are not longer profitable due to the over-construction of golf courses, the aging golf population, and the increased expense involved in operating the golf course.” Slip op. at 17. Thus, the court held that instead of a loss of economic value because of the refusal to rezone, it was based on the owner’s “failed economic expectations.” What exactly does all this have to do with whether the owner was deprived of all use of the property by the rezoning? Not much, in our read. If you have better ideas, please do send them our way.
Finally, the court rejected the owner’s assertion that the refusal to rezone the property was an ad hoc taking under Penn Central, even though the character of the government action cut in the owner’s favor — it seemed unfair that the benefit of having the property remaining a golf course was loaded up solely on the property owner — the other two factors cut the other way. The owner conceded that it knew when it bought the land that it was not zoned for residential use and thus it didn’t really have great investment-backed expectations, and, as noted above, the good economist doctor testified that “the two parcels, taken together, retained an economically beneficial use.” Slip op. at 19.
It seems to us that as counterintuitive as that conclusion is, that once accepted by the court, it should have been enough to wipe out the total taking claim without going through all the nonsense about whether the parcel itself had changed.
Ocean Palm Golf Club Partnership v. City of Flagler Beach, No. 5D12-4274 (Fla. App. May 30, 2014)