Building Industry Association - Bay Area v. City Of Oakland

Filing 72

ORDER GRANTING MOTION TO DISMISS by Judge Chhabria granting 62 Motion to Dismiss. (vclc2S, COURT STAFF) (Filed on 2/5/2018)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA

BUILDING INDUSTRY ASSOCIATION –
BAY AREA,

Case No. 15-cv-03392-VC

Plaintiff,

ORDER GRANTING MOTION TO
DISMISS

v.

Re: Dkt. No. 62
CITY OF OAKLAND,
Defendant.

The City of Oakland's motion to dismiss is granted. Dismissal is with prejudice.
I.
Oakland is one of at least twelve cities in California that have ordinances requiring
developers to display or fund art as a condition of project approval. Under the current version of
Oakland's ordinance, which was enacted in July 2017, a developer of a multifamily project with
over twenty units must either: (i) spend 0.5 percent of building development costs on art displays
on the site of the development or a nearby right-of-way; or (ii) pay an equivalent amount to a
city-operated fund for public art installations. A developer of certain commercial projects must
purchase and install art valued at one percent of building development costs or pay an equivalent
fee to Oakland's public-art fund. This requirement applies generally to all development projects
that fit the Ordinance's criteria, although there are ways for some developers to get out of the
requirement or reduce the amount they need to spend. For example, a developer of affordable
housing doesn't need to comply with the ordinance if it can show that compliance costs would
make the project economically infeasible. And the ordinance includes a mechanism to

administratively appeal a decision by the Planning Commission or Planning Director requiring
compliance with the ordinance.
The Building Industry Association – Bay Area has challenged the validity of the
ordinance on two constitutional grounds. First, the Association claims the ordinance violates the
Takings Clause of the Fifth Amendment. Second, the Association claims the ordinance compels
speech in violation of the First Amendment.
II.
With respect to the takings claim, the Association argues that the ordinance is an
unlawful exaction that violates the "exactions doctrine" applied in Nollan v. California Coastal
Commission, 483 U.S. 825 (1987), Dolan v. City of Tigard, 512 U.S. 374 (1994), and Koontz v.
St. Johns River Water Management District, 133 S. Ct. 2586 (2013). But the Supreme Court has
only applied this exactions doctrine in cases involving a particular individual property, where
government officials exercised their discretion to require something of the property owner in
exchange for approval of a project. And the Court has consistently spoken of the doctrine in
terms suggesting it was intended to apply only to discretionary decisions regarding individual
properties. See, e.g., Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 546-47 (2005). Moreover, the
Ninth Circuit and the California Supreme Court have expressly stated that a development
condition need only meet the requirements of Nollan and Dolan if that condition is imposed as
an "individual, adjudicative decision." McClung v. City of Sumner, 548 F.3d 1219, 1227 (9th
Cir. 2008); Ehrlich v. City of Culver City, 12 Cal. 4th 854, 876-81 (1996); id. at 899-900 (Mosk,
J., concurring) ("[W]hen the fee is ad hoc, enacted at the time the development application was
approved, there is a greater likelihood that it is motivated by the desire to extract the maximum
revenue from the property owner seeking the development permit, rather than on a legislative
policy of mitigating the public impacts of development or of otherwise reasonably distributing
the burdens of achieving legitimate government objectives."). Broadly applicable regulations
like the one at issue in this case are assessed under the Penn Central regulatory takings
framework. McClung, 548 F.3d at 1227.

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The Association relies heavily on Levin v. City and County of San Francisco, in which
Judge Breyer applied the exactions doctrine in a facial challenge to a generally applicable, welldrafted ordinance that required property owners in San Francisco wishing to withdraw their
properties from the rental market to make significant payments to the tenants they were evicting,
to mitigate the harm those tenants would suffer from being displaced from their homes in an age
of skyrocketing rental prices. Although the Ninth Circuit held in McClung that Nollan and
Dolan do not apply to generally applicable development conditions, Judge Breyer concluded that
this holding was invalidated by the Supreme Court's subsequent ruling in Koontz. 71 F. Supp. 3d
1072, 1083 n. 4 (N.D. Cal. 2014).
But that's not what happened in Koontz. The Court did not hold in Koontz that generally
applicable land-use regulations are subject to facial challenge under the exactions doctrine; it
held only that the exactions doctrine applies to demands for money (not merely demands for
encroachments on property). In reaching this holding, the Court went out of its way to make
clear that it was not expanding the doctrine beyond that. See 133 S. Ct. at 2602 ("This case does
not require us to say more."); id. at 2600 n. 2 ("[T]his case does not implicate the question
whether monetary exactions must be tied to a particular parcel of land in order to constitute a
taking."). Koontz involved an adjudication by local land-use officials regarding an individual
piece of property, and throughout its decision the Court spoke of the exactions doctrine in those
terms. For example, the Court stated: "The fulcrum this case turns on is the direct link between
the government's demand and a specific parcel of real property." 133 S. Ct. at 2600 (emphasis
added). "Because of that direct link," the Court stated, "this case implicates the central concern
of Nollan and Dolan: the risk that the government may use its substantial power and discretion in
land-use permitting to pursue governmental ends that lack an essential nexus and rough
proportionality to the effects of the proposed new use of the specific property at issue, thereby
diminishing without justification the value of the property." Id. (emphasis added); see also id. at
2594 (noting that permit applicants are "especially vulnerable" to government coercion "because
the government often has broad discretion to deny a permit that is worth far more than property it

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would like to take"). The exactions doctrine, in other words, has historically been understood as
a means to protect against abuse of discretion by land-use officials with respect to an individual
parcels of land, and Koontz itself spoke of it in those terms, undermining Judge Breyer's
argument that Koontz displaced the Ninth Circuit's rule that the exactions doctrine is unavailable
to a plaintiff making a facial challenge to a generally applicable land-use regulation.
Perhaps reasonable arguments could be made for expanding the reach of the exactions
doctrine so that it can be invoked in facial challenges to a generally applicable regulations, rather
than merely discretionary decisions regarding an individual property by land-use officials. See
Calif. Building Industry Association v. City of San Jose, 136 S. Ct. 928, 928-29 (2016) (Thomas,
J., concurring in cert. denial). But the point, for purposes of this motion, is that it would be an
expansion of the doctrine. If that occurs, it should be in the Supreme Court, not the Northern
District of California.
Since the ordinance applies generally to a broad swath of nonresidential and multifamily
developments, whether the ordinance facially violates the Takings Clause should be evaluated
under the regulatory takings framework. But the Association has not (and cannot) plead a viable
facial regulatory takings challenge to the ordinance, because – at a minimum – the fee required
by the ordinance is no more than one percent of building development costs. See Penn Central
Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978). This cost, which is only
triggered if a developer chooses to build certain types of nonresidential and multifamily
construction, does not cause a large enough loss of value to amount to a facial regulatory taking.
See Keystone Bituminous Coal Association v. DeBenedictis, 480 U.S. 470, 495 (1987); Penn
Central, 438 U.S. at 124-26.
III.
The Association claims that the ordinance violates the First Amendment rights of its
members because the ordinance requires developers to engage in speech.
It would be difficult to accept Oakland's argument that the ordinance does not implicate
the First Amendment at all. The purchase and display of artwork is a protected form of

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expression. See White v. City of Sparks, 500 F.3d 953, 955-57 (9th Cir. 2007); cf. Hurley v.
Irish-American Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557, 569 (1995). And the
ordinance requires developers to pay for art (and display it, unless they comply by paying the fee
to fund the City's art program).
But it's even tougher to accept the Association's argument that the ordinance is
automatically invalid simply because it involves some degree of compelled speech. Plenty of
laws involve a degree of compelled speech, and only some of those trigger heightened judicial
scrutiny. Cf. Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144, 1152 (2017) (Breyer,
J., concurring in judgment) (noting that "virtually all government regulation affects speech").
When determining whether to apply heightened scrutiny, courts should assess "whether,
or how, a challenged statute, rule, or regulation affects an interest that the First Amendment
protects." Id.; see also Vikram David Amar & Alan E. Brownstein, How First Amendment
Speech Doctrine Ought to Be Created and Applied in the Colorado Baker/Gay Wedding Dispute
at the Supreme Court, Verdict (Sept. 22, 2017) [https://perma.cc/3QL6-GNRF] (discussing
characteristics of compelled speech requirements that trigger heightened judicial scrutiny). For
example, the Court has closely scrutinized laws that compel people to convey a political or
ideological message or affirm a specific belief because these laws interfere with open discourse
and disrupt speakers' ability to freely express their own ideas. See, e.g., Agency for International
Development v. Alliance for Open Society International, Inc., 570 U.S. 205, 218 (2013); Wooley
v. Maynard, 430 U.S. 705, 714-16 (1977); W. Va. State Board of Educ. v. Barnette, 319 U.S.
624, 642 (1943). The Court has also applied heightened First Amendment scrutiny where a law
requires certain speakers to publish others' messages, if the requirement hinders the speakers'
ability to express their own message. See Pacific Gas & Elec. Co. v. Public Utilities Comm'n,
475 U.S. 1, 13-14 (1986); Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241, 258 (1974).
On the other hand, if the speech requirement is minimal, if there is minimal risk that the speech
could be misattributed, and if the speech requirement doesn't significantly deter other speech,
judicial scrutiny is far more relaxed. See Rumsfeld v. Forum for Academic and Institutional

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Rights, Inc., 547 U.S. 47, 65, 69 (2006); PruneYard Shopping Center. v. Robins, 447 U.S. 74, 87
(1980); Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985).
Oakland's ordinance does not raise any of the red flags discussed above or otherwise
"significantly affect the interests that the First Amendment protects." Expressions Hair Design,
137 S. Ct. at 1152 (Breyer, J., concurring in judgment). The ordinance does not require a
developer to express any specific viewpoint, because developers can purchase and display art
that they choose. To the extent a developer wishes for the building to convey a particular
message, there's no reason to believe that an art display would muddle that message. (And in at
least some cases, a developer can comply with the ordinance without modifying the building's
design at all by placing the art in a nearby right-of-way.) Perhaps most importantly, even if the
ordinance to some extent encourages developers to engage in expressive conduct by purchasing
and displaying art, the degree of compulsion is minimal, because if developers do not want to
purchase and display art on or near their property, they can comply with the ordinance by paying
a fee to the City in the same amount. And although Oakland uses that money to fund art, the
Association does not argue (and could not reasonably argue) that the First Amendment prevents
a local government from earmarking revenue collected from its residents to display art.
Therefore, the ordinance is subject to review under the First Amendment only to ensure
that it is reasonably related to a legitimate governmental purpose. See Expressions Hair Design,
137 S. Ct. at 1152 (Breyer, J., concurring in judgment); cf. Zauderer, 471 U.S. at 651; Beeman v.
Anthem Prescription Mgmt., LLC, 58 Cal. 4th 329, 363-64 (2013). The City has articulated a
number of legitimate goals; these include improving the aesthetics within the city and bolstering
real property values. Oakland, Cal., Ordinance 13443 (June 15, 2017); see Berman v. Parker,
348 U.S. 26, 33 (1954); Village of Euclid, Ohio v. Ambler Realty Co., 272 U.S. 365, 388-89
(1926). It is reasonable to believe that the installation of art at or around new developments and
the installation of public art funded by the in lieu fee will both improve the city's aesthetics and
increase property values. It is also reasonable to assume that development can have adverse
effects on aesthetics in a city (for example, obstruction of views and reduction in sunlight), and

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that the art requirement mitigates those adverse effects. Therefore, the ordinance does not
violate the First Amendment.

IT IS SO ORDERED.
Dated: February 5, 2018
______________________________________
VINCE CHHABRIA
United States District Judge

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