News

Judge rules against city on Edgewood fines

City of Palo Alto must return nearly $250,000 to the developer in a semantics case

A court decision regarding whether developer Sand Hill Property Company is required to pay $700,500 in penalties for failing to keep an operating grocery store at Edgewood Plaza Shopping Center came down to the American Heritage Dictionary definitions of the words "use" and "operate."

Santa Clara County Superior Court Judge Peter Kirwan, in a Dec. 15 decision, found the words are not synonymous and ruled that the city erred in fining the developer, Edgewood LLC, $500 to $5,000 daily over a two-year period. The developer claimed it could not find a replacement grocer after the previous grocery store, The Fresh Market, pulled out of the center in March 2015.

The city maintained that its amended zoning ordinance for the property specified that developer John Tze was required to have an operating grocer in the 20,600-square-foot building, which has housed a grocery store since the 1950s. But Kirwan sided with Tze, finding first that the dictionary definitions the city had tried to meld are distinct: "use" is the manner or purpose for which something is used; "operate" refers to running or controlling the function or use, he noted.

Secondly, Sand Hill was not required to actually ensure operation of a grocery store on an uninterrupted basis. The city's own treatment of the terms "use" and "operation" when it adopted its 2010 planned-community ordinance for another shopping area, College Terrace Centre (which also required a grocery store), specifically states that the space shall be in "continuous operation" as a grocery store. The city should have added that language to the Edgewood zoning ordinance if it intended for the developer to keep the grocery store operational at all times, he said.

Kirwan wrote: "The adjective 'continued' does not create any ambiguity in meaning to justify construing the requirement of 'continued use' of the building as a grocery store as creating a condition for uninterrupted operation. The city could have stated in (the ordinance for Edgewood) that 'continued operations' was required as it did with (the ordinance for College Terrace Centre), but did not do so."

He therefore negated $248,250 in penalties Sand Hill paid, plus interest, which were issued through April 3, 2017. The judge left the door open for the city to potentially have to return the balance of the $700,500 plus interest levied for the additional citations, which accrued beginning October 2015. The city had determined that Sand Hill violated the planned-community ordinance from Sept. 30, 2015 through Jan. 30, 2017, by not having a grocery store operating on site.

Palo Alto had granted Sand Hill changes to the site's zoning on April 9, 2012, which allowed it to add 10 homes to the site in exchange for providing certain public benefits. The grocery store on the site is one of those benefits. The shopping center, which is one of the only known commercial developments by Joseph Eichler, was to have its structures preserved and restored.

But the issue of whether the public benefit meant having an "operating" grocery store or just having a grocery store space as a designated "use" became muddled after Sand Hill demolished one of the buildings it was tasked with preserving while it was moving the structure. The city fined the developer in excess of $50,000 for the demolition and reissued a modified planned-community ordinance on Nov. 18, 2013, which Tze signed.

The city added a new sentence to the amended ordinance regarding the public-benefit description to read "the commercial property owner shall ensure the continued use of the 20,600-sq.-ft. building as a grocery store for the life of the project."

The city claimed that Sand Hill was in violation of the ordinance after the grocery store space was empty for more than six months. Sand Hill claimed it had contacted 70 possible grocers to take over the site after The Fresh Market vacated it in late March 2015, but Sand Hill was unable to find a replacement. The Fresh Market has a 10-year lease and continued as the tenant of record, paying monthly rent. It also controlled any sublease agreements, Tze has testified.

From October 2015 to Jan. 30, 2017, the city issued 72 administrative citations against Sand Hill, ratcheting up the penalty over time from $500 per day up to $5,000 per day for each day the site remained without an operating grocer.

Sand Hill protested the penalties in front of Lance Bayer, a city-appointed administrative-hearing judge, but on April 2, 2017, he found the penalties were lawful and were not excessive. The developer, through its business entity Edgewood LLC, filed its appeal in Superior Court in April 2017.

Kirwan noted that Bayer's Dec. 15 ruling only pertained to the citations numbered 57-70. He only ruled to reverse the penalties pertaining to those citations. But he may throw out all 72 penalties. The court will decide after both sides submit supplemental briefs whether Sand Hill has exhausted all of its legal remedies regarding the remaining citations and penalties -- in general a requirement prior to a court hearing.

But there have been exceptions. Sand Hill is claiming all of the citations are invalid because Judy Glaes, who issued the citations on behalf of the city, was not authorized to do so. Sand Hill did not specifically raise the issue as an exception to the exhausted-remedies doctrine, but it did cite a single case that may be appropriately applied, Kirwan wrote.

Glaes is a code-enforcement officer. Certain Palo Alto municipal code sections designate the employees who may enforce the provisions in the zoning regulations. Sand Hill maintains that the code sections authorize only the chief building official, plan-check engineer and ordinance-compliance inspector. The city argued briefly that the code-enforcement officer is specifically authorized under one section of the municipal code to issue administrative citations. But Sand Hill's attorneys maintain the provisions cited by the developer prevail over the city's cited code section.

Edgewood LLC must file its supplemental brief by Jan. 10, 2018, and the city must respond by Jan. 26.

City Attorney Molly Stump could not be reached for a comment on the ruling.

In June, the developer found a new market operator, family-run Crystal Spring Produce of San Mateo, to take over the lease. The new market, called The Market at Edgewood, opened this month.

Matt Larson, spokesman for Sand Hill Property Company, stated in an email: "The court's ruling shows that we did not violate any zoning ordinance. We are happy that The Market at Edgewood is now open and has received rave reviews from the neighborhood and greater Palo Alto community. Our focus is on doing what we can to support the success of The Market."

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Comments

53 people like this
Posted by AngryKitty
a resident of Crescent Park
on Dec 21, 2017 at 8:19 pm

I hope the City appeals this ruling. This developer has screwed the City by demolishing the original Eichler office building and kept the grocery store vacant for way to long. They need to pay.


62 people like this
Posted by Abitarian
a resident of Downtown North
on Dec 21, 2017 at 9:31 pm

Great. Another screw-up by city staff resulting in a win for the developer, financial cost to the city, and inconvenience to the citizens. So, glad we are paying top dollar to recruit and retain the best and the brightest at City Hall. Surely, the responsible employees will get a big raise for their fine work.


23 people like this
Posted by commonsense
a resident of Professorville
on Dec 21, 2017 at 9:39 pm

Yeah a win for "commonsense" ...wah wah was you silicon valley crybabies should have shopped at the fresh market and perhaps it would have never closed but no,,, you go to costco or whole paycheck...


32 people like this
Posted by Ron J.
a resident of College Terrace
on Dec 21, 2017 at 10:48 pm

@AngryKitty The developer "screwed" the city how? By providing a grocery store twice that is far better thane ours in College Terrace? Stop your first world problems crying - you had the best store in PA and probably didn't shop there. Now you have a second store that's great and all you car about is some perceived injustice about a vacant store for 18 months. Grow up.


49 people like this
Posted by neighbor
a resident of Duveneck/St. Francis
on Dec 21, 2017 at 11:46 pm

The local Fresh Market didn't close because it wasn't showing a return. They opened 6 stores, had no clue as to how shoppers differ from those in the South East and this store was the only one that was showing any profit at all.

Crying for SH is a waste of tissues - they built 10 homes which sold for 3 mil and over- each. And took away 75 parking places. Those people who have the CC&R acted in good faith in exchange to have grocery store. If those who wrote the contract didn't carefully and precisely write it so that it protected the city and the adjacent neighborhoods - that is a big loss for us all. Sand Hill somehow magically found a grocer once the fine went up to $5000/day. At that point it was real money so they made it happen.....something they could have done 2 years earlier - but it was not worth their effort till the fine mattered.

As for your less than satisfactory College Terrace Grocer - the developer of that project would have done anything to get his permit and he did. At one point he tried to present his son as someone competent to develop and run the store.
At least the city didn't accept that and wanted more of a professional. The developer's son was a stock clerk for a while in a grocery store. Mickey, who had opened the grocery store on Alma, unfortunatley wasn't able to make a success of that but must have gotten a good deal from the developer and accepted the offer - so the City Council gave the developer a permit. Time will tell.

This is not about first world problems - come shop at The Market - it is a good store. Sadly, SandHill has had enough projects in the city and south bay to leave behind a trail of mistrust and provided themselves with a less than honest reputation as a developer


35 people like this
Posted by Seriously?
a resident of Midtown
on Dec 22, 2017 at 12:53 am

Even if “use” means something different from “operate,” in what sense is having an empty space “using” it as a grocery. Reserving for use is not use. What am I missing?


35 people like this
Posted by john_alderman
a resident of Crescent Park
on Dec 22, 2017 at 1:03 am

john_alderman is a registered user.

Now here is judge actually worth recalling.


13 people like this
Posted by Mark the broker
a resident of Duveneck/St. Francis
on Dec 22, 2017 at 6:22 am

Not a surprise. In the real world there is enormous difference between a designated 'use' and 'continuous operation". Grocery tenants don't sign leases with the later in them. We got lucky with the market. They were in a small 2,000 Square foot space in San Mateo doing only fruit and vegetables. Obviously SH put them into business with the $300k, and they've done a great job of following the Fresh Market's formula. Give SH some credit for finding them and taking the chance. If they falter, and especially with this ruling, we are in real trouble. And both Safeway and Amazon want them to fail.


11 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Dec 22, 2017 at 8:48 am

Shopping in Palo Alto is ridiculously difficult. Safeway doesn't have enough parking and runs out of staples by dinnertime.

Piazza's does have a lot going for it, but doesn't have some staple brands that Safeway has.

The huge Safeways in Menlo Park and Mountain View have great selections for one stop shopping.

SH were fully aware of their obligations and should have used more carrots to get things up to standard from the start. They didn't, they failed.


232 people like this
Posted by Lenore
a resident of Duveneck/St. Francis
on Dec 22, 2017 at 9:01 am

Mark, it is hard to give SH credit for finding the family to open a grocery store. This is a HUGE risk for the owners as this is an enormous undertaking.

If SH had done this 18 months ago, I would agree with you. However, after all the frustration, untruths and problems created, plus the size of SH's pockets - their risk is minimal. Especially when so many of Sand Hill's facts and information was pretty consistently proven to be empty of reality. So much of what they shared with us never passed the "smell" test.


16 people like this
Posted by Don't Judge the Judge
a resident of College Terrace
on Dec 22, 2017 at 10:13 am

These comments are so indicative of PA residents. Crying because their overpriced grocery store went away for 3 years and were FORCED to shop at Safeway or Costco. So they blame the evil developer for destroying their rich bubble way of life.

Meanwhile there are homeless families who can't afford housing or food living in cars on ECR 1/2 mile away.

This is the very definition of a first world problem. Shameful entitlement may a be better term.


31 people like this
Posted by Crescent Park Dad
a resident of Crescent Park
on Dec 22, 2017 at 10:57 am

Don't blame the judge! He points out how the CT market requirement for "continuous operations" was spelled out in that agreement but clearly was not in the Edgewood agreement.

The fault sits directly in the lap of the city staff. If they had written in the correct phrase, none of this would have happened.

Every lawyer knows (I am not a lawyer) that every agreement must be specific. The city blew it, plain and simple.


18 people like this
Posted by Annette
a resident of College Terrace
on Dec 22, 2017 at 11:36 am

Annette is a registered user.

Out-lawyered? Staff error? I wonder. I've never met a lawyer who isn't acutely aware of the importance of using the correct words. And practiced at doing so.


16 people like this
Posted by Resident
a resident of Duveneck/St. Francis
on Dec 22, 2017 at 11:37 am

Thank God that the city lost this case. It was a joke. The planning department in the city attorney‘s office are constantly trying to screw business owners in the city. Finally the judicial system comes to the rescue. Any residents the think a developer is responsible for operating a grocery store are not being realistic. You build the grocery store and you lease it out . They did that. There was still a lease in place. Now there’s a sublease. Bad planning is what accounts for the poorly performing grocery store. It’s not a good location for a grocery store. The Eichler nonsense is just A red herring.


248 people like this
Posted by john_alderman
a resident of Crescent Park
on Dec 22, 2017 at 11:43 am

john_alderman is a registered user.

@resident - No one forced Sand Hill into this, they wanted to horse trade to get those houses. Yout pity is misplaced. Once they agreed to the deal, then reneged, they deserved the fines.


18 people like this
Posted by peninsula resident
a resident of another community
on Dec 22, 2017 at 12:09 pm

While I'm certain that the City cannot blacklist SandHill from future construction projects in Palo Alto and the surrounding cities due to SandHill's bad-faith interactions with the area, keep in mind that it is EQUALLY certain that NO city is obligated to change zoning to accommodate any real estate developer's pocketbook, like PA did with SandHill.

If Palo Alto were smart, moving forward PA will no longer change zoning or any other PA-specific building requirements to accommodate SandHill's future projects...which enforcing codes and zoning is absolutely within PA's purview.


10 people like this
Posted by Concerned Observer
a resident of Old Palo Alto
on Dec 22, 2017 at 12:48 pm

It is unlikely the store will survive, although I hope it does. The neighbors need to support it and they won't. Stopping in for one or two items just to patronize the place and then doing the majority of your shopping somewhere else with better prices won't keep the market afloat. The store needs locals to buy all their groceries there and that's not going to happen. The neighbors can pout all they want. If it fails they have no one to blame but themselves. The developer didn't promise to make the store a success. I'm glad the judge decided the way he did.


29 people like this
Posted by Anonymous
a resident of Another Palo Alto neighborhood
on Dec 22, 2017 at 1:31 pm

So much for "Planned Community" Developer exceptions. They were a farce invented to soak up campaign donations and this judge just confirms it.


4 people like this
Posted by Jh
a resident of Evergreen Park
on Dec 22, 2017 at 1:38 pm

Jh is a registered user.

@neighbor

"At one point he tried to present his son as someone competent to develop and run the store."

"He" (the original) was developer, Patrick Smailey, a friend of the family that owned the land and their property manager. He had an arrangement with the owners that his son, James, who we were told was in construction, but perhaps was the handyman for Patrick's property management business, possibly thought that a salaried job managing the grocery store (and on site property manager/maintenance handyman, would be the replacement grocery operator. Except neither the son, nor his father, had any experience operating a grocery store, and did not meet the criteria for the grocery store owner in the agreement they had signed with the city.

The owners had a problem. Under their bargain with the city to increase the allowable office square footage from 13,000 sq ft to 40,000 square feet, the owners had offered to save JJ&F, or if that failed to substitute a grocery operator with similar experience. The quid pro quo. And now the city had turned down their plan for James. And the permit for the office occupancy was on condition the grocery store was opened first. So Mikki was presented as the new owner of the grocery store, or the frontman since there were two silent partners who put up the money. The city issued the occupancy permit for the offices.

Unfortunately for the silent partners, who invested the upfront money to get the grocery store ready to open, the property owners/developer delayed their opening for about a year, a huge drain on their capital already invested in outfitting the store. More unfortunately, the property manager does not appear to have been vested in the success of the store. Ever wonder why the College Terrace Market had minimal signage on the exterior of the building? Or why the grocery store has been refused access to the off road space designated for the market's garbage that was included in the city's agreement with the city? There are/were enough other problems with the property management that new the owners have had to resort to legal remedies. Meanwhile, how much more capital can they continue to sink into the market?

Given that the city did use the words "continuous" operation, if the current market owners are unable to continue, will we find that after all the new owner will be the property manager, with his son given the job of running the market, as per the original plan? A happy ending. 40,000 square foot of first class lucrative office space and a job for James.


7 people like this
Posted by NeilsonBuchanan
a resident of Downtown North
on Dec 22, 2017 at 2:25 pm

NeilsonBuchanan is a registered user.

There is one way to shine light on this situation. Council can get new legal opinion on what to do next and get an independent opinion on the basis of judge's decision(s) being rendered against the city.

Funds have been held in escrow by city anticipating that city could lose some or all of funds in dispute. Nevertheless, cash flow is going in the wrong direction. This has the marks of a quality control problem so it should be managed as such by Council.


12 people like this
Posted by Abitarian
a resident of Downtown North
on Dec 22, 2017 at 6:06 pm

It seems like the true lesson is getting lost. This really isn't about whether or not Fresh Market was good or whether or not Sand Hill is unethical.

The city *intended* to require Sand Hill to provide an up and running market for the duration of the contract. According to the judge, the city *failed* to use the appropriate language in the contract to make this happen. Accordingly, Sand Hill was not, in fact, required to provide an up and running market and, therefore, not required to pay any fines associated with the closure of the market.

The city can appeal, and perhaps another judge would rule in favor of the city.

Nevertheless, in my opinion, the "blame" lies with the city. While the interpretation of language is not an exact science, the highly compensated city attorneys, city planners, and city management simply lacked the skill to write an iron-clad contract, and the city council approved the flawed contract.

This is not surprising -- have you seen the stuff that comes out of City Hall? Most of the writing doesn't merit better than a grade of "C".

Also, this is not new. A few years ago, there was a heated controversy regarding how much compensation the residents of Buena Vista would be due according to the terms of a city ordinance which assured sufficient payment to relocate to a "comparable" community. At the time, I reviewed the original language, and it was full of loopholes, obvious even to a non-attorney.

We do not hire competent staff and consultants and, in addition to their inflated salaries and benefits, we pay the price for their mistakes.

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FWIW, this is what I wrote regarding Buena Vista:

Posted by Abitarian
a resident of Downtown North
on Apr 15, 2015 at 9:05 pm

At least for me, it is helpful to remember that our justice system is an "adversarial" one, where each party tries to convince the (hopefully) impartial judge or jury that his or her perspective is the correct one, and in civil cases, the end result is often a settlement that finds some compromise between the differences rather than some absolute truth.

In the Buena Vista situation, it appears that each side has a valid position. The Jissers have a right to close the park because they own the property. The residents have a right to compensation because it is mandated by a city ordinance.

The legal wrangling -- including the debate about the meaning and intention of specific words in the law -- is just part of the process, business as usual. It is not unique to Buena Vista or Palo Alto.

A major point of contention surrounds the definition of a "comparable" community. The law lists several factors "such as" shopping, medical services, recreational facilities, and transportation, but does not mention public schools.

The Jissers argue that the omission means that public schools were not meant to be included in calculating the assessment. The residents maintain that the "such as" language means "for example" and does not exclude elements not listed, such as the public schools. The jury, in this case, City Council, agrees with the residents.

It isn't a revision of the law. It's an interpretation. Courts do it all the time. In fact, the US Supreme Court is set to consider a case concerning the Affordable Care Act in which the two sides disagree about whether some wording is meant to apply to both state and federal health care exchanges vs. only state health care exchanges. Sound familiar?

Back here at home, my feeling is that the original legislation, though well-intended, was flawed in concept as well as execution. Certainly, the language provides ample opportunity for speculation. And the whole "comparable" community notion is a nice idea, but seems designed for controversy.

See Web Link


1 person likes this
Posted by Observer
a resident of University South
on Dec 22, 2017 at 7:16 pm

Note that all of this - and hundreds of thousands of dollars in fines - is what’s required to build 10 houses in Palo Alto. 10!

If you ever wonder why we keep getting held up as an example of an anti-housing City, here’s your answer. Well, this and Maybell.


7 people like this
Posted by Andrew Boone
a resident of East Palo Alto
on Dec 22, 2017 at 8:18 pm

The grocery store is not even a public benefit. Only rich people can afford to shop there.


26 people like this
Posted by Anonymous
a resident of Duveneck/St. Francis
on Dec 22, 2017 at 8:47 pm

Wow, I am just disgusted by all this. Sand Hill skates on a technicality? Some businesses don’t operate in good faith so try not to do business with them. I wish our city staff were worthy of their luxury salaries/benefits, too. How can city officials hold up their heads after this debacle? I mean, they list these things on their resumes?! (I refer to those associated with approval and conditions of this project.) The situation should be much better at Edgewood Shopping Center. I do recommend the Chinese restaurant.


27 people like this
Posted by bigger problem
a resident of Another Palo Alto neighborhood
on Dec 22, 2017 at 11:08 pm

The judge was correct to rule as he did. Is this just simple staff incompetence, an oversight, or
is there another way of looking at and understanding what happened here. It's part of the pro-development/developer bias and mentality in City Hall. Protecting the public interest is not part of the mindset of the staff or the Council. That is not their orientation. It affects everything. The Shell station next to Edgewood Plaza was renovated a few years ago with no apparent design control considering its location. All part of the same pattern. The problems at City Hall run deep.



20 people like this
Posted by Carlitos Waysman
a resident of Old Palo Alto
on Dec 23, 2017 at 2:15 am



The overpaid attorneys working for Palo Alto are not worth their salt.


10 people like this
Posted by Mayor Scharff?
a resident of Old Palo Alto
on Dec 23, 2017 at 2:33 pm

Gregory Scharff is a canny real estate lawyer.
How about he applies some of his expertise for the benefit of the city in this case? Not just for developers as usual, but for the city.

How about it Mayor Scharff?


9 people like this
Posted by Curmudgeon
a resident of Downtown North
on Dec 25, 2017 at 2:15 pm

"How can city officials hold up their heads after this debacle?"

SOP. Screwing up on these PC zoning giveaways to developers is routine at city hall. This one was somewhat more sly than usual; it took the developer several years to find it. What is truly amazing is that city hall actually tried to enforce this PC. Maybe because of the money.


5 people like this
Posted by CrescentParkAnon.
a resident of Crescent Park
on Jan 5, 2018 at 1:29 pm

The intent was plain and that is what ought to count,
not some after the fact lawyer's slimy reading of the dictionary.
This decision should be appealed, and the judge removed.
What other point would there be to having that language
in the contract?

Why do judges always come down on the side of the money?


1 person likes this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Jan 5, 2018 at 2:53 pm

As annoying as the situation is, people should give the new market a try. So far, it looks like mostly produce, dairy, deli, etc., and doesn't try to compete with Costco on canned goods, paper goods, and all those bulky items. Pretty appropriate product selection for people shopping on the way home from work; probably not so much for the once-a-week visit to a giant supermarket.


Sorry, but further commenting on this topic has been closed.

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