Filed 4/3/14 Scholars Academic Foundation v. City of Glendale CA2/4
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.


           IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                   SECOND APPELLATE DISTRICT

                                                DIVISION FOUR


SCHOLARS ACADEMIC                                                    B243799
FOUNDATION, INC.,
                                                                     (Los Angeles County
         Plaintiff and Appellant,                                     Super. Ct. No. EC052590)

         v.

CITY OF GLENDALE,

         Defendant and Appellant.




         APPEAL from a judgment of the Superior Court of Los Angeles County,
David S. Milton, Judge. Reversed.
         Michael J. Garcia, City Attorney, and Ann M. Maurer for Defendant and
Appellant.
         Law Offices of Vip Bhola and Vip Bhola; Law Offices of Richard M.
Foster, Richard M. Foster and Christina Malyan for Plaintiff and Appellant.
      Scholars Academic Foundation, Inc. (the school) sued the City of Glendale
(City) after the City “yellow tagged” the school’s building for violations of the
Glendale Building and Safety Code.1 As here relevant, the school alleged two
causes of action: inverse condemnation and violation of due process. In a bench
trial, the trial court found that the City’s action constituted a permanent taking of
the school’s property for which compensation was required. The City appeals,
raising several challenges to the trial court’s findings. The school cross-appeals,
contending that the trial court erred in awarding it $135,000 instead of $2.7 million
in damages. On two independent grounds, we reverse the judgment: (1) the
school failed to exhaust its administrative remedies, and (2) the City’s actions did
not constitute a taking. We therefore reverse the judgment and dismiss the
school’s cross-appeal.


              FACTUAL AND PROCEDURAL BACKGROUND
Requirement of a Conditional Use Permit
      On January 22, 2010, the school entered into a lease of property at 3800-
3810 Foothill Boulevard. The lease was signed by Anna Grigoryan, the school
principal, and Artur Danielyan, the school secretary.2 Grigoryan hired Mike
Geragos, a general contractor and member of the City’s Design Review Board, to
prepare an application for a conditional use permit from the City.



1
       “Yellow tagging” is the phrase commonly used to describe the process by which
the City declares a building unsafe to occupy. Volume 5, Sections 1101 to 1104.2 of the
Glendale Building and Safety Code “give[] the Glendale Building Official the authority
to post a ‘Notice to Vacate’ any building declared to be substandard.”
2
      Danielyan is also described in the record as the school Vice Principal.

                                            2
      In January 2010, Edith Fuentes, the City’s zoning administrator, met with
Grigoryan and Geragos. Fuentes told them that a conditional use permit
application was required for the school, which required a formal hearing.3
Nonetheless, according to Grigoryan, Fuentes gave the school permission to move
in and begin operating during the pendency of its application for the conditional
use permit. According to Fuentes, she did not have the authority to grant
permission to operate without a proper permit or zoning use certificate. Rather,
she gave the school permission to move in boxes, but not to begin operating,
consistent with the City’s occasional past practice of allowing a business to move
into a location while applying for a conditional use permit.


The School Opens Without Permits
      In January 2010, the school began operating a private school for students
from kindergarten through high school at the location, although it had not yet
obtained permits from the City. On January 27, 2010, the City’s Neighborhood
Services Inspector, Thomas Soler, received a report from the Glendale Police
Department that a new school had moved into the building at 3800 Foothill without
a zoning use certificate or conditional use permit and with no pending application
for either. Soler verified that the area was a C-3 zone and learned that there was no
application for either a zoning use certificate or conditional use permit at the time.
      Soler visited the property and told Danielyan that the school needed to
obtain a zoning use certificate and conditional use permit. Danielyan said that the

3
       Glendale School District had previously operated a school at the location, but was
not required to obtain permits from the city. At trial, a 1999 letter by Glendale’s City
Attorney was admitted into evidence, which stated that the City was precluded by
California Supreme Court case law from enforcing local building and safety codes,
including permits, against the school district.

                                            3
documents were being prepared and would be submitted shortly. On January 29,
2010, Soler sent a 15-day letter to the school, stating that “it was operating and
maintaining a private educational institution in a C-3 zone without proper use
permits and without a proper zoning use certificate.” By February 16, 2010, the
school still had not filed any documents for a zoning use certificate or conditional
use permit. Soler spoke again with Danielyan, who stated that they were in the
process of submitting the paperwork.


The School Performs Non-Permitted Construction
      On February 11, 2010, Ronald Billing, a senior building inspector with the
Glendale Building and Safety Division, observed children playing in a
subterranean garage at the school. Having observed construction workers at the
site, he asked a woman inside if there was construction taking place, and she said
that there was. Because the workers were working without a permit, Billing gave
the woman a B-13 form, or “Stop Work Order.”
      On February 17, 2010, Billing sent a code violation letter to the building
owner. The letter notified the owner that construction work – the erection of a wall
“to divide one unit into two separate spaces (including building and electrical)”—
was being done without permits or an inspection, in violation of Appendix Chapter
1 Section 105.1 of Volume I of the Glendale Building and Safety Code (Building
Code). The notice gave the owner 30 days to obtain the necessary permits and
begin corrective action. If construction was performed without obtaining the
necessary permits, building permit fees were subject to being doubled.
      Shortly after sending the letter to the building owner, Billing learned from
Jan Edwards, Glendale’s Deputy Building Official, that the last legal occupancy
designation of the school’s building was a “Group B occupancy,” which is for

                                          4
office space. However, under the Building Code , a private school required a
“Group E occupancy” designation. According to Billing, the Glendale Unified
School District might well have operated a school in the building as a Group E
occupancy, but approvals and inspections for public schools were performed by a
state agency, not the City. Moreover, as Billing noted, “by performing
unauthorized/unpermitted interior alterations to the building, one or the other entity
had changed the building to some unknown state beyond what the state had
approved for use as a public school.”


Inspection of the School
      On February 24, 2010, Billing inspected the school with Jeffrey D. Halpert,
Fire Marshal of the Glendale Fire Department, and Gregory Ahern, an inspector
with the Glendale Fire Department. They took pictures of the conditions that
constituted code violations, and Halpert prepared a report of the violations dated
March 18, 2010. According to the fire inspection report: “Alterations were made
to the building without benefit of permits (specifically, . . . one [rear] exit door was
sealed-in-place); [¶] The fire alarm system was out-of-service. . . . ; [¶] Some
areas were not properly protected by fire sprinklers (due to the unpermitted
construction, some sprinklers were too far from or close to a wall); [¶] Desks and
other items were being stored within hallways, causing an obstruction and posing a
hazard. . . . ; [¶] One [rear] exit door had been sealed-in-place; [¶] The exit doors
were equipped with hardware inappropriate for a school (‘storefront’ type doors,
with double-key deadbolts). Almost all of the exit doors were locked except for
one – the entry; [¶] There were approximately 70 students total, with only four
total toilets available. [¶] . . . [¶] A subterranean parking garage is now being



                                           5
used as both a playground and for storage of combustible materials. The storage is
extremely dense and piled high.”
       At trial, Halpert summarized the safety violations as follows: “We saw that
all of the exits in the building were locked except for one that was an entry. The
exit doors did not have the right hardware for a school. . . . [¶] The hardware that
was in that building, that’s typical of a business or an office-type use. But for a
school, the code requires that the hardware be what we call panic hardware. And
none of the doors in that building had the panic hardware.”4 In addition, some of
the doors did not open outward in order to allow quick egress in the event of a fire.
Halpert also stated that the fire alarm system “was completely out of service.” The
exit doors were locked, in violation of the code, and illegal construction in the
building had resulted in the sprinkler system failing to protect all areas of the
building.


The Decision to Yellow Tag
       Because of the seriousness of the violations, the City held a meeting to
decide on a course of action, attended by representatives of the Building and Safety
Department, the Code Enforcement Department, the City Attorney’s Office, and
the Fire Department. The participants concluded that the violations were so severe
that it would be unsafe for anyone to occupy the building. They therefore decided




4
         Halpert explained that panic hardware “is a type of unlatching device on a door
that . . . if there’s a crowd or a panic, it doesn’t require someone to manually manipulate
like a lever or doorknob.”

                                             6
to yellow tag the building, prohibiting any occupancy or use of the building except
for personnel involved in making repairs or retrieving property.5
       On February 24, 2010, around 5:00 p.m., Halpert, Ahern, Billing, and Soler
went to the school to place yellow tags. They met with Danielyan, Geragos and
Grigoryan for approximately an hour and explained the safety issues discovered by
the inspection. They then yellow tagged the school and left around 7:00 p.m.




5
        The requirements for a notice to vacate from the building official are found in
Section 1101 of the 1997 Uniform Housing Code, which was adopted as Volume V of the
Glendale Building and Safety Code. (City of Glendale Ordinance No. 5581, found at
http://www.ci.glendale.ca.us/gmc/Ordinance5581.pdf.) The code provides as follows:
“1101.1 Commencement of Proceedings. When the building official has inspected or
caused to be inspected a building and has found and determined that such building is a
substandard building, the building official shall commence proceedings to cause the
repair, rehabilitation, vacation or demolition of the building. [¶] 1101.2 Notice and
Order. The building official shall issue a notice and order directed to the record owner of
the building. The notice and order shall contain the following: [¶] 1. The street address
and a legal description sufficient for identification of the premises upon which the
building is located. [¶] 2. A statement that the building official has found the building
to be substandard, with a brief and concise description of the conditions found to render
the building dangerous under the provisions of Section 202 of this code. [¶] 3. A
statement of the action required to be taken as determined by the building official.”
        Billing cited Volume V, Sections 1101-1104.2 of the Glendale Building and
Safety Code as the authority for the yellow tagging. In its brief, the City cites California
Building Code section 115.3. The language of these two provisions is slightly different.
Section 115.3 states: “If an unsafe condition is found, the building official shall serve on
the owner, agent or person in control of the structure, a written notice that describes the
condition deemed unsafe and specifies the required repairs or improvements to be made
to abate the unsafe condition, or that requires the unsafe structure to be demolished
within a stipulated time. Such notice shall require the person thus notified to declare
immediately to the building official acceptance or rejection of the terms of the order.”
(California Building Code, § 115.3 (2007), found at
http://publicecodes.cyberregs.com/st/ca/st/b200v07/st_ca_st_b200v07_app1_sec015.htm)

                                             7
The School Reopens
       Ani Zeneian, a teacher at the school, testified that the school was closed after
the yellow tagging for approximately six weeks, until the school obtained a
temporary restraining order allowing it to reopen. During the six weeks that the
building was closed, the school relocated to a banquet hall. Zeneian estimated that
the school lost approximately one-half of its original 150 students as a result of the
yellow tagging and the relocation.6


Follow-up Code Violation Notice
       On February 25, 2010, the City sent a letter to the building owner, entitled
“Code Compliance Follow-Up Notice, Additional Violations Noted.” This notice
included additional violations for failure to obtain the proper permits as well as the
violations discovered during inspections by the Fire Department and the Building
and Safety Department. The letters sent to the school did not specify the code
sections that had been violated. Nonetheless, Soler said that he believed that the
school was sufficiently apprised of the needed repairs, based on the discussion held
by the inspectors with Geragos and Grigoryan.7


6
      The school’s enrollment records indicate that the school had 158 students in
January 2010, 124 students for the period of January 25-30, 2010, 99 students in
February 2010, and 59 students in June 2010.
7
        The February 25, 2010 letter included citations to general code sections, as well as
the text of the sections violated. For example, the letter described the first violation as
“Unsafe installation and/or maintenance of modifications, alterations to the interior of
3800 Foothill Blvd Unit #A and Unit #B, and 3810 Foothill Blvd to include structure,
electrical, plumbing and mechanical modifications, alterations without city
approval/permits,” in violation of Building and Safety Code section V1.105.1. The letter
then set forth the text of the code.
        The letter also indicated that the school violated Glendale Municipal Code
sections 30.12.020(B) and 30.46.020 by operating a private educational institution in a
                                               8
      On February 26, 2010, Halpert, Ahern, and Geragos met with Stuart Tom, a
building official from the Building and Safety Department, to discuss the
possibility of allowing temporary occupancy while permits were obtained.
Although the fire department was willing to support a temporary fire permit, the
request for a temporary permit needed to be considered by the Building
Department and the Planning Department as well. From approximately March 1 to
9, 2010, Geragos met several times with various City officials, but on March 4,
Halpert told Geragos that the City Attorney’s office had placed a hold on the
temporary permit.
      After the school hired contractors to make the necessary repairs to the fire
sprinkler and fire alarm systems, those systems were inspected and approved by
Halpert on March 4 and 5, 2010. Halpert issued a fire alarm permit and a fire
sprinkler permit.


The Lawsuit
      On April 1, 2010, the school filed the instant civil action against the City in
the superior court. On April 5, 2010, the superior court granted the school’s
motion for a temporary restraining order and ordered that the school be allowed to
continue operating at the location pending a hearing on the motion for a
preliminary injunction. The City removed the action to federal district court,
which transferred the case back to the superior court in July 2010.


C3 zone without obtaining a conditional use permit and a zoning use certificate, and set
forth the relevant sections of the code. (See Glendale Municipal Code, §§ 30.12.020,
30.46.020, found at http://www.ci.glendale.ca.us /gmc/30.aspx.) The letter stated that the
Neighborhood Services Inspector will visit the property on March 29, 2010, to determine
if the corrections have been made. The letter further instructed the owner to contact the
building inspector to obtain further details.

                                            9
      Meanwhile, the school did not submit its application for a conditional use
permit until April 8, 2010. In an April 19, 2010 letter, the City informed Geragos
that the school’s check submitted with its applications for a conditional use permit
and a parking reduction permit was returned for insufficient funds. Thereafter,
pursuant to a resolution passed by the City Council in 2009, providing for fees to
be doubled for applications attempting to legalize a cited use, structure or structural
alteration, the school’s application fees were doubled.8
      On May 18, 2010, the City sent Geragos another letter, stating that the
school’s applications for the conditional use permit and the parking reduction
permit were still incomplete. The letter set forth 18 specific issues that needed to
be addressed or clarified.9
      On July 9, 2010, the City sent Geragos another letter again stating that the
application was incomplete. On July 27, 2010, a City Planner sent an email to
Geragos, stating that Geragos did not come as expected to pay the application fees.

8
      According to the school, the City required it to pay more than double in fees.
Under the City’s 2011-2012 Fee Schedule, the fee for a conditional use permit was
$2,750, but the school was required to pay $6,467.50, approximately $967 more than the
doubled amount.
9
        One of the issues discussed in the May 18, 2010 letter was the City’s requirement
that the school conduct an environmental impact study to support its application for a
parking reduction permit. The letter explained that, pursuant to calculations based on
formulas set forth in the City Parking Code, Chapter 30.32.050C, the total parking
required for the school was 215 parking spaces. (See Glendale Zoning Code,
§ 30.32.050C, found at http://www.ci.glendale.ca.us/gmc/Zoning_Code/Chapter30-
32.pdf.) The school wanted to provide only 22 or 23 parking spaces. The City therefore
required the school to conduct an environmental impact study in order to ensure that the
reduced number of parking spaces would not have an adverse environmental impact.
Timothy Foy, Assistant Director of Community Planning for the City, testified that the
California Environmental Quality Act required an environmental impact study when a
business applied for a parking reduction permit, although some discretion was involved
in deciding whether to impose the requirement.

                                           10
Because “the fees were not submitted by the agreed upon deadline,” the school’s
applications were deemed rejected. The email explained that if the school wanted
to proceed with the permit applications, it needed to submit new applications and
pay the requisite fees. The record does not indicate that the school ever submitted
a new application.
      On July 20, 2010, Halpert, fire inspector Joe Morelly, Billing, and Tom met
with Danielyan and the school’s counsel at the school. According to Halpert, they
thoroughly inspected the building and noted each remaining violation. Some of the
violations found on February 24 still existed, such as the lack of panic hardware on
exit doors, the failure of self-closing doors in corridors, and the garage being used
for both storage and a playground.
      Halpert was told by Ann Maurer of the City Attorney’s office “that the City
Council ordered the City Attorney to go after the school.” Thereafter, on
September 1, 2010, the City obtained a temporary restraining order enjoining the
school from operating without first obtaining “all proper permits and certificates”
for the property.
      On October 22, 2010, the school filed a first amended complaint, alleging
six causes of action: (1) inverse condemnation; (2) violation of due process;
(3) conversion; (4) intentional interference with prospective economic relations;
(5) negligent interference with existing economic relationships; and (6) intentional
interference with existing contracts. The superior court granted the City’s motion
for judgment on the pleadings as to the third, fourth, fifth, and sixth causes of
action, leaving only the claims for inverse condemnation and violation of due
process.




                                          11
The Bench Trial
      In April 2012, the trial court held a bench trial at which the City employees
testified to the facts set forth above. In addition, the school presented the
testimony of its expert, Byron Foster, a retired fire marshal for the State of
California. Foster testified that he inspected the school on March 25, 2010 and
reviewed the City’s reports, the declarations of City officials, the depositions, and
the exhibits. In his opinion, the yellow tagging was unnecessary.
      The court issued a statement of decision in which it concluded that “under
case law the action taken by the [City] in ‘yellow tagging’ the building ‘went too
far’ and ‘constituted a taking’ for which just compensation is required.” The City
objected to the statement of decision on the basis that it did not explain the factual
and legal basis, and asked the court to explain the factual and legal bases for eight
controverted issues.
      The court subsequently issued a final statement of decision. The court
explained that it was the City’s “improper and unconstitutional enforcement of
reasonable and valid regulations that amounted to a taking.” The court found the
taking to be permanent, based on the City’s “aggregate conduct . . . such as
unwarranted ‘yellow tagging,’ use of intimidating tactics during inspections, such
as demanding personal information from the owners/operators/board members,
license plate recordation, photographing of vehicles at the location, which the
evidence showed was admittedly improper, failure to provide proper notice of
violations, refusal to reinspect after notice by [the school] that conditions had been
rectified, unexplained refusal to allow [the school to] continue with school
operations after city departments agreed that it would be safe and appropriate to do
so, unnecessary doubling of fees in some areas, and requiring further discretionary



                                          12
studies in some instances.” The court found that evidence regarding the valuation
of school’s business was reasonable and awarded the school $135,000.
      The court entered judgment in favor of the school and awarded it $135,000.
The City filed a notice of appeal, and the school filed a cross-appeal. This court
consolidated the cases for purposes of briefing, oral argument and decision.


                                   DISCUSSION
I.    Ripeness and Exhaustion of Administrative Remedies
      We begin with the City’s contention, made in the trial court and urged again
on appeal, that the school’s action was not ripe, because the school failed to
exhaust its administrative remedies. We agree.
      “‘[A] claim that the application of government regulations effects a taking of
a property interest is not ripe until the government entity charged with
implementing the regulations has reached a final decision regarding the application
of the regulations to the property at issue.’ [Citation.]” (Hensler v. City of
Glendale (1994) 8 Cal.4th 1, 10.) “Ripeness . . . is a matter of final administrative
adjudication. The idea of ripeness arises . . . because local authorities should have
the chance to change their minds when a local restriction otherwise results in a
compensable taking.” (Avenida San Juan Partnership v. City of San Clemente
(2011) 201 Cal.App.4th 1256, 1279 (Avenida San Juan Partnership).)
      For an administrative decision to be ripe for judicial review, the decision
must be final, meaning that the school “must proceed through the full
administrative process ‘to a final decision on the merits.’ [Citation.]” (California
Water Impact Network v. Newhall County Water Dist. (2008) 161 Cal.App.4th
1464, 1489 (California Water Impact Network).) “‘“‘The exhaustion doctrine is
principally grounded on concerns favoring administrative autonomy (i.e., courts

                                          13
should not interfere with an agency determination until the agency has reached a
final decision) and judicial efficiency (i.e., overworked courts should decline to
intervene in an administrative dispute unless absolutely necessary).’ [Citation.]
. . . ‘“Even where the administrative remedy may not resolve all issues or provide
the precise relief requested by a plaintiff, the exhaustion doctrine is still viewed
with favor ‘because it facilitates the development of a complete record that draws
on administrative expertise and promotes judicial efficiency.’”’ [Citation.]”
(Tejon Real Estate, LLC v. City of Los Angeles (2014) 223 Cal.App.4th 149, 156.)
       “‘In brief, the rule is that where an administrative remedy is provided by
statute, relief must be sought from the administrative body and this remedy
exhausted before the courts will act.’ [Citation.] The rule is a jurisdictional
prerequisite in the sense that it ‘is not a matter of judicial discretion, but is a
fundamental rule of procedure laid down by courts of last resort, followed under
the doctrine of stare decisis, and binding upon all courts.’ [Citations.]” (Citizens
for Open Government v. City of Lodi (2006) 144 Cal.App.4th 865, 874.)
       In the present case, the evidence is undisputed that the school failed to
exhaust its administrative remedies. First, it never completed the initial permit
application process. Thus, the City never had occasion to hold a hearing and rule
on the whether the school was entitled to the required permits.
       Second, section 112 of the Glendale Building and Safety Code contains a
specific appeal procedure for decisions made by a City building or fire code
official, such as the decision to yellow tag the building. Under this procedure, an
appeal of a decision regarding the application and interpretation of the code must
be made to the building and fire board of appeals, which must hold a public
hearing on the matter. (Glendale Building & Safety Code, §§ 112.1-112.3.4.) A
party aggrieved by the decision of the board of appeals may then appeal the

                                            14
decision to the City Council.10 (Glendale Building & Safety Code, § 112.3.5.) The
school failed to avail itself of the appeal process in challenging the City’s decision
to yellow tag the building. No appeal was taken to the building and fire board of
appeals or to the City Council.
      In short, the instant lawsuit does not challenge a final administrative
decision: there is no final decision denying the school appropriate permits because
the school never complied with the permit application process, and there is no final
decision regarding yellow tagging the school building because the school did not
follow the procedure to appeal that decision. Thus, the school’s action against the
City is barred, unless an exception to the exhaustion requirement applies.
      The trial court did not make an express finding on whether the school was
excused from exhausting its administrative remedies. Because the court rendered
judgment in the school’s favor, we rely on the doctrine of implied findings to infer
that the court must have found that the exhaustion requirement was excused. (See
SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462
[explaining that the doctrine of implied findings “(1) directs the appellate court to
presume that the trial court made all factual findings necessary to support the
judgment so long as substantial evidence supports those findings and (2) applies
unless the omissions and ambiguities in the statement of decision are brought to the
attention of the superior court in a timely manner”].)
      The school relies on the futility doctrine to excuse the requirement of
administrative exhaustion. Under this doctrine, “[t]he failure to pursue
administrative remedies does not bar judicial relief where the administrative

10
      “[T]he exhaustion doctrine applies even where the administrative remedy is
couched in permissive language. [Citation.]” (California Water Impact Network, supra,
161 Cal.App.4th at p. 1489.)

                                          15
remedy is inadequate or unavailable, or where it would be futile to pursue the
remedy. [Citation.] In order to invoke the futility exception, a plaintiff must show
‘“that the [agency] has declared what its ruling will be on a particular case.”’
[Citation.]” (Howard v. County of San Diego (2010) 184 Cal.App.4th 1422, 1430-
1431.)
      Here, the school relies on the totality of the City’s actions as evidencing a
certainty, or near certainty, that the City would have denied the appropriate permits
even if the administrative process had been followed to completion. However,
“‘“[f]utility is a narrow exception to the general rule”’ requiring exhaustion of
remedies. [Citation.] The exception applies only if the party invoking it can
positively state that the administrative agency has declared what its ruling will be
in a particular case.” (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298,
1313.) An administrative remedy is not inadequate “‘merely because additional
time and effort would be consumed by its being pursued through the ordinary
course of the law.’” (Coachella Valley Mosquito & Vector Control Dist. v.
California Public Employment Relations Bd. (2005) 35 Cal.4th 1072, 1082
(Coachella Valley).) Moreover, a prior adverse administrative ruling or even
demonstrated bias is not sufficient to establish the futility exception because an
administrative agent “may change his or her mind.” (Unnamed Physician v. Board
of Trustees (2001) 93 Cal.App.4th 607, 620 (Unnamed Physician); see Economic
Empowerment Foundation v. Quackenbush (1997) 57 Cal.App.4th 677, 691
(Economic Empowerment Foundation) [claim of insurance commissioner’s bias
insufficient to establish futility exception, explaining, “that the Commissioner may
have treated [the school] and other intervenors unfairly in other proceedings does
not establish that he is bound to do so in this one”].)



                                          16
      Fatal to the school’s futility argument is the undisputed fact that the school
failed to pursue to completion even the first step of its available administrative
remedies. It filed no appeal of the decision to yellow tag the school building, and
it never completed the initial permit application process. In these circumstances, it
cannot be said that the City’s actions, even viewed as a whole, constituted a
declaration that it would uphold the yellow tagging of the school if the appropriate
appeal process had been pursued, resulting in a public hearing and appeal to the
City Council, or that it would deny the school’s application for a conditional use
permit if a completed application were filed and a public hearing were held. Put
another way, the failure to complete the permit application and to appeal the
yellow tagging decision did not accord the City decision makers “the chance to
change their minds” regarding the issues at the heart of the school’s claims in this
lawsuit. (Avenida San Juan Partnership, supra, 201 Cal.App.4th at p. 1279.)
      We conclude that the trial court erred in its implied finding that the school
was not required to exhaust its administrative remedies. Therefore, on this ground
alone, the judgment must be reversed.


II.   Taking under Lucas or Penn Central
      Even if the school was excused from exhaustion, we further conclude that
there was no taking.
      The City contends that its actions do not constitute a taking under United
States Supreme Court precedent. “‘Whether the [City’s] actions constituted a
taking is a mixed question of law and fact. [Citations.] Our review is neither
entirely de novo nor entirely limited by the substantial evidence rule. [Citation.]
“Mixed questions of law and fact involve three steps: (1) the determination of the
historical facts—what happened; (2) selection of the applicable legal principles;

                                          17
and (3) application of those legal principles to the facts. The first step involves
factual questions exclusively for the trial court to determine; these are subject to
substantial evidence review; the appellate court must view the evidence in the light
most favorable to the judgment and the findings, express or implied, of the trial
court. [Citations.]” [Citation.] Thus, we do not apply de novo review to factual
findings underlying the trial court’s judgment, instead applying the substantial
evidence rule. [Citation.] Only the second and third steps involve questions of
law, which we review de novo.’ [Citation.]” (Lockaway Storage v. County of
Alameda (2013) 216 Cal.App.4th 161, 183 (Lockaway Storage); see also Allegretti
& Co. v. County of Imperial (2006) 138 Cal.App.4th 1261, 1269 (Allegretti)
[“Whether there was a compensatory taking is a question of law, and we are not
bound by the lower court’s interpretation of the evidence presented on the question
below.”].)
      “The state and federal Constitutions guarantee real property owners ‘just
compensation’ when their land is ‘taken . . . for public use. . . .’ [Citations.] The
Fifth Amendment’s takings clause, made applicable to the states through the
Fourteenth Amendment, does not prohibit the taking of private property, but
instead places a condition on the exercise of that power. [Citation.] ‘In other
words, it “is designed not to limit the governmental interference with property
rights per se, but rather to secure compensation in the event of otherwise proper
interference amounting to a taking.”’ [Citation.]
      “‘The paradigmatic taking requiring just compensation is a direct
government appropriation or physical invasion of private property.’ [Citation.]
But ‘government regulation of private property may, in some instances, be so
onerous that its effect is tantamount to a direct appropriation or ouster—and . . .
such “regulatory takings” may be compensable under the Fifth Amendment.’

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[Citation.] Supreme Court precedents recognize two categories of regulatory
action that generally will be deemed per se takings for Fifth Amendment purposes.
[Citation.] First, where government requires an owner to suffer a ‘permanent
physical invasion’ of his property—even as minor as cable lines and boxes bolted
onto an apartment building’s roof and exterior walls—it must provide just
compensation. [Citations.] ‘A second categorical rule applies to regulations that
completely deprive an owner of “all economically beneficial use” of her property.’
[Citation.] ‘[I]n Lucas [v. South Carolina Coastal Council (1992) 505 U.S. 1003
(Lucas)] [the high court held] that the government must pay just compensation for
such “total regulatory takings,” except to the extent that “background principles of
nuisance and property law” independently restrict the owner’s intended use of the
property.’ [Citation.] [¶] Outside these two categories, regulatory takings
challenges are governed by the ‘essentially ad hoc, factual inquiries’ set forth in
[Penn Central Transp. Co. v. City of New York (1978) 438 U.S. 104 (Penn
Central)]. [Citations.]” (Allegretti, supra, 138 Cal.App.4th at pp. 1269-1270.)
      “Whether a regulation goes ‘too far’ is tested under what has been called the
‘Penn Central factors’ approach. Our own Supreme Court has noted that there are
three core factors: (1) the economic effect on the landowner; (2) the extent of the
regulation’s interference with investment-backed expectations; and (3) the
character of the governmental action. [Citation.]” (Avenida San Juan Partnership,
supra, 201 Cal.App.4th at p. 1272.)
      The instant case does not involve a direct government appropriation or
physical invasion of private property. Instead, the trial court found that the City’s
actions in yellow tagging the building “went too far” and thus constituted a taking.
The school relies on both the Lucas theory that it was denied all economically



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beneficial use of its property and the Penn Central theory that the City’s actions
“went too far.”
      Lucas requires the imposition of “a regulation that declares ‘off-limits’ all
economically productive or beneficial uses of land.” (Lucas, supra, 505 U.S. at p.
1030.) That is, an owner of real property has suffered a taking when “[he] has
been called upon to sacrifice all economically beneficial uses in the name of the
common good, that is, to leave his property economically idle.” (Id. at p. 1019; see
also Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency
(2002) 535 U.S. 302, 330 [explaining that the categorical rule of Lucas “would not
apply if the diminution in value were 95% instead of 100%,” and that “[a]nything
less than a ‘complete elimination of value,’ or a ‘total loss,’” would require a Penn
Central analysis].) That was not the situation here.
      There is no evidence that the facility could not have been used for a purpose
other than a school. City records indicated that the building was designated for use
as an office. Moreover, the school personnel were still able to enter the building to
make repairs. Thus, the school was not deprived of all economically beneficial use
of the property. (See Avenida San Juan Partnership, supra, 201 Cal.App.4th at p.
1273 [not a complete taking because there was no substantial evidence the City
would not approve any development on the property]; compare Freeny v. City of
San Buenaventura (2013) 216 Cal.App.4th 1333, 1340 [in determining whether the
school has exhausted administrative remedies, “[i]f a plaintiff is claiming that a
government entity has effected a regulatory taking by ‘“den[ying] [her] all
economically beneficial or productive use . . .”’ of her property, denial of a single
use or project may not be sufficient. [Citation.] Presentation and rejection of other
uses—that is, reexhaustion—may also be necessary to establish that the property



                                          20
has no use.”].) The Lucas theory accordingly does not apply. As we explain,
neither does the Penn Central theory.
        “The Penn Central inquiry is not a means-ends test; the question is not
‘whether a regulation of private property is effective in achieving some legitimate
public purpose.’ [Citation.] Instead, the goal is to assess the ‘magnitude or
character of the burden a particular regulation imposes upon private property
rights’ in order to determine whether its effects are ‘functionally comparable to
government appropriation or invasion of private property.’ [Citation.]”
(Lockaway Storage, supra, 216 Cal.App.4th at p. 185.) “Although the Penn
Central factors do not serve as a checklist, a court may dispose of a takings claim
on the basis of one or two of them. [Citations.]” (Shaw v. County of Santa Cruz
(2008) 170 Cal.App.4th 229, 272 (Shaw).)
        We find the second Penn Central factor to be dispositive and therefore focus
our discussion there: the extent to which the regulation has interfered with distinct,
investment-backed expectations. (Shaw, supra, 170 Cal.App.4th at p. 272.) “A
‘“reasonable investment-backed expectation”’ must be more than a ‘“unilateral
expectation or an abstract need.”’ [Citation.] Also important in analyzing this
factor is the ‘nature and extent of permitted development under the regulatory
regime vis-à-vis the development sought by the claimant.’ [Citation.]” (Id. at p.
273.)
        The school contends that the yellow tagging interfered with distinct,
investment-backed expectations, arguing that it had entered into a five-year lease,
had 158 students, and knew that the City was flexible about allowing businesses to
operate while applying for a conditional use permit. Even construing the facts in
the school’s favor by, for example, assuming that Fuentes gave the school
permission to operate temporarily while it applied for its permits, the fact remains

                                          21
that the school never completed its applications for its permits and yet continued to
operate, and never appealed the decision to yellow tag the school. It is not
objectively reasonable to expect to be able to operate a private school in the long
term (i.e., five years pursuant to the lease) without obtaining the necessary permits
from the City or challenging through proper administrative procedures a decision
to yellow tag the school. On this ground alone, there was no taking under Penn
Central. Therefore, the judgment must be reversed.11


                                     DISPOSITION
              The judgment is reversed. The City is entitled to costs on appeal.
              NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS




                                                  WILLHITE, J.




              We concur:




              EPSTEIN, P. J.                      MANELLA, J.


11
       In light of our conclusion that the trial court erred in finding a taking, we need not
address the City’s arguments that the statement of decision was inadequate, that
substantial evidence does not support the court’s factual findings, that the court
improperly conflated due process and takings jurisprudence and erred in finding the
school’s due process rights were violated by the taking, and that the court erred in its
award of damages. We also dismiss plaintiff’s cross-appeal regarding the amount of the
award.
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