Palo Alto plans to appeal a December court ruling that invalidated the city's fines against Sand Hill Property Company for failing to maintain an operational grocery store at the redeveloped Edgewood Plaza.
By a 7-2 vote, with Mayor Liz Kniss and Councilman Greg Tanaka dissenting, the council directed staff Monday night to appeal a Dec. 15 ruling by Santa Clara County Superior Court Judge Peter Kirwan, which effectively invalidated about $318,250 in fines that the city issued to Sand Hill last year.
In issuing its citations, the city had concluded that Sand Hill had violated the conditions of its "planned community" zone by not having an operational grocer at the plaza at 2080 Channing Ave.
The grocery store, which was the primary public benefit of Edgewood's redevelopment, was vacant from March 2015, when The Fresh Market pulled out of the plaza, until December 2017, when The Market at Edgewood opened its doors. In October 2015, the city began issuing daily fines against the developer, which started out at $500 and escalated to $5,000.
But even though Sand Hill's long search for a grocer finally reached a successful conclusion last month, the Monday vote ensures that its legal battle with the city will continue into the foreseeable future.
Each side has already scored a limited victory. In April 2017, Administrative Hearing Officer Lance Bayer affirmed the city's right to levy fines against Sand Hill and ordered the developer to pay $248,250 in back penalties. Sand Hill appealed and received a favorable ruling in December, when Kirwan negated these penalties with interest.
Kirwan did not, however, rule on the more than $700,000 in penalties (plus interest) that had accrued between October 2015 and January 2017, instead directing both sides to file supplemental briefs. With the passage of time, the stakes have gotten even higher. If the appeal prevails, Sand Hill can be on the hook for more than $1 million in fines.
In directing staff to pursue the appeal "at an appropriate time," the council effectively rejected a settlement offer that Sand Hill submitted last week. According to the proposed settlement, the developer had agreed not to seek a refund for the first 56 citations, which totaled $382,250.
Sand Hill proposed that the city "direct these funds to benefit the local community that Edgewood Shopping Center serves."
The settlement offer from Sand Hill also calls on the city to refund the $318,250 that Sand Hill paid under citations 57-72, consistent with Kirwan's order. The interest on these payments would be donated to the community under the offer.
"All parties and members of the community appear to appreciate the successful efforts to find and support The Market at Edgewood," Sand Hill's attorney David Lanferman wrote in the Jan. 26 letter. "Settlement at this time has the advantage of allowing the City to avoid further expenditure of public funds, and would eliminate exposure to potential award of additional damages and attorneys."
Matt Larson, spokesman for Sand Hill, reiterated this offer in his comments just before the closed session. The company, he said, is "not looking to profit off of these fines."
"We want to see these fines go to the community," Larson said. "In return, there would be no further legal action on either side."
Kirwan's ruling was based on the fact that the city's "planned community" ordinance, which granted Sand Hill the right to redevelop Edgewood Plaza, did not specifically mandate "continued operation" of the grocery store. Rather, it only required "continued use" of the property as a grocery store.
"While a grocery store was not functioning or operational during the relevant time due to the cessation of a tenant's business, Petitioner was not required under the terms of the ordinance to ensure the actual operation of a grocery store on an interrupted basis," the ruling states.
The city and Sand Hill did agree on one issue. Kirwan requested that each side submit a supplemental brief this month. Instead, the two sides co-signed a stipulation requesting more time to reach a possible settlement. Signed by attorneys from both sides, the stipulation states that they are "engaged in preliminary and tentative discussions endeavoring to resolve all of the remaining issues related to this case."
Kirwan granted the stipulation, which calls for Sand Hill to submit its brief by Feb. 28 and for the city to do so by March 16.