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."