Investors v. City of Flagstaff

• Decision Date: 24 May 2011
• Docket Number: No. 1 CA–CV 10–0013.,1 CA–CV 10–0013.
• Citation: 258 P.3d 154,609 Ariz. Adv. Rep. 23,227 Ariz. 336
• Parties: CANYON DEL RIO INVESTORS, L.L.C., an Arizona limited liability company, Plaintiff/Appellant,v.CITY OF FLAGSTAFF, a municipal corporation, Defendant/Appellee.
• Court: Arizona Court of Appeals

227 Ariz. 336

258 P.3d 154

609 Ariz. Adv. Rep. 23

CANYON DEL RIO INVESTORS, L.L.C., an Arizona limited liability company, Plaintiff/Appellant,

v.CITY OF FLAGSTAFF, a municipal corporation, Defendant/Appellee.

No. 1 CA–CV 10–0013.

Court of Appeals of Arizona, Division 1, Department E.

May 24, 2011.

Burch & Cracchiolo, P.A. By Daryl Manhart, Edwin Fleming, Jessica Conaway, Phoenix, Attorneys for Plaintiff/Appellant.Mariscal, Weeks, McIntyre & Friendlander, P.A. By Michael S. Rubin, Nicole S. Felker, Phoenix, Attorneys for Defendant/Appellee.

OPINION

SWANN, Judge.

¶ 1 Canyon del Rio Investors, L.L.C. (“CDR”), brought claims against the City of Flagstaff for declaratory judgment and damages in connection with a zoning dispute. The superior court ruled that the claims were barred by the statute of limitations. We hold: (1) damage claims arising out of municipal zoning decisions do not ripen—and the statute of limitations does not begin to run—until the plaintiff exhausts its administrative remedies; and (2) though declaratory judgment claims may be brought before related damage claims become ripe, no statute of limitations begins to run against such claims until administrative remedies have been exhausted. We further hold that while a plaintiff is not required to exhaust its administrative remedies before bringing an action under 42 U.S.C. § 1983, an as-applied challenge to a zoning decision must be predicated on a final decision by the relevant government body.

FACTS AND PROCEDURAL HISTORY

¶ 2 In May 1984, the Arizona State Land Department (“ASLD”) developed a land use plan (the “1984 Plan”) for 331 acres of state land located within the City, proposing a “mixed use planned community” that included parcels for residential, commercial, and other uses and specified zoning categories for each parcel. At that time, the Revised Flagstaff Zoning Code of 1970 was in effect, and, pursuant to a 1973 amendment, allowed single-family dwellings on land zoned RM–M.

¶ 3 In 1991, the City adopted the 1991 Land Development Code (the “1991 Code”), which rezoned any undeveloped areas within the planned community to “comparable new zoning districts as shown on the Official Zoning Map.”

¶ 4 In 2002, CDR purchased 314 acres (the “Property”) and agreed to sell certain parcels to various third parties. CDR developed an Initial Platting Proposal covering both residential and commercial portions of the Property and submitted that proposal to the City. The City, however, required CDR to make onsite and offsite improvements it claimed were required by “Ordinance 1925.”

¶ 5 In February 2004, CDR met with the City and advised it that the required improvements had rendered its proposed plat plan “economically unfeasible.” CDR withdrew the proposal and advised its third-party purchasers to submit separate applications for residential parcels, while CDR created a development plan for the commercial parcels.

¶ 6 In April 2004, CDR and Cachet, a third-party purchaser, met with the City to review CDR's commercial development plan and Cachet's residential plan. The City advised CDR that its new plan “would not be considered or approved” because it required that the Property be rezoned. The City told Cachet that its residential plan “would not be considered favorably” at an upcoming Development Review Board (DRB) hearing because the plan did not comply with City Ordinance 1925 and did not concurrently plan for residential and industrial parcels. After the DRB hearing, the City “referred back” the Cachet plan because it did “not meet the requirements of the [1984 Plan] or City's Subdivision requirements.” CDR never demanded, however, that the DRB issue a final decision on its proposed plan.

¶ 7 In May 2004, CDR sent the City a Notice of Claim pursuant to A.R.S. § 12–821.01, which alleged that the City's application of Ordinance 1925 rendered development of the Property “unfeasible.” The Notice of Claim asserted that the City's application of the ordinance and the concurrence requirement was illegal and alleged damages of more than $30 million. But CDR did not sue.

¶ 8 In April 2007, CDR again met with city staff to review a new development master plan (“2007 Plan”) that included single-family housing on one parcel. City staff, however, stated that single-family homes were not permitted on the parcel pursuant to the 1991 Code. CDR believed that the 1991 rezoning did not conform to the 1984 Plan, but the City believed otherwise and stated it would review CDR's 2007 Plan by interpreting the 1991 Code “in connection with” the 1984 Plan. The City offered to review CDR's plan in this light and identify “any perceived conflicts” between the 1991 Code and CDR's 2007 Plan “on an item by item basis as part of the development review process.” If CDR disagreed with that approach, however, the City would “reject” CDR's plan, which it had “on hold,” because it “ignores the current zoning regulations.”

¶ 9 In May, the City “refused to accept” CDR's application for concept review because it contemplated single-family housing on a disputed parcel. In a July 2007 letter to the City, CDR demanded that the City accept both its application for concept review that it intended to re-submit, as well as any future plans that were consistent with the 1984 Plan. CDR also asserted that the 1991 zoning was invalid as to the Property, that the City's attempts to impose it on CDR violated its due process rights, and that the 1991 Code would materially alter the 1984 Plan. CDR contemplated a “mandamus action” if the City did not approve its plan, and offered to settle its claims against the City for $26,000,000.

¶ 10 In March 2008, CDR proposed that the City enter into a development agreement to resolve the dispute. CDR also asserted for the first time that the City had misrepresented the zoning for the disputed parcel, based on an ordinance that CDR had recently discovered. CDR threatened to file a lawsuit to “recover the substantial, accruing damages caused by the City's actions” if the proposed agreement was not approved by the City Council by April 1, 2008. As in 2004, CDR did not request a final decision by DRB and therefore pursued no administrative appeals.

¶ 11 On April 7, 2008, CDR commenced a civil action against the City. The Complaint advanced six claims for relief, three of which sought declaratory judgment concerning the City's application of its various plans and ordinances and the constitutionality of Ordinance 1925. The remaining claims sought damages for misrepresentation and alleged violations of CDR's due process rights.

¶ 12 The City moved to dismiss the complaint on the grounds that (1) it had not been brought within one year of the accrual of the cause of action, (2) CDR failed to allege compliance with Arizona's notice of claim statute, (3) CDR lacked standing to challenge the validity of the zoning code under statutes governing the development of state land, (4) CDR failed to exhaust its administrative remedies, and (5) CDR failed to join the Arizona State Land Commissioner as an indispensable party. CDR responded that its action challenged only the City's rejection of its May 2007 application, making its complaint timely filed.

¶ 13 The trial court dismissed the complaint, ruling CDR's claims were barred by a one-year statute of limitations pursuant to A.R.S. § 12–821. It also noted that CDR's complaint had not alleged compliance with the notice of claim statute, A.R.S. § 12–820.01, and that one of its claims for declaratory judgment regarding the applicable zoning code would necessarily involve the Arizona State Land Commissioner, who was not joined in the complaint.

¶ 14 CDR timely appeals. We have jurisdiction pursuant to A.R.S. § 12–2101(B).

DISCUSSION

Standard of Review

¶ 15 When the City filed its motion to dismiss, it attached copies of documents regarding the zoning of the Property and CDR's May 2004 notice of claim. CDR's response incorporated its correspondence with the City and certain zoning documents. These attachments, which were not stricken, converted the motion to dismiss to one for summary judgment. See Ariz. R. Civ. P. 12(b); Yollin v. City of Glendale, 219 Ariz. 24, 27, ¶ 6, 191 P.3d 1040, 1043 (App.2008) (basing summary judgment conversion on incorporation of the notice of claim and other documents with party's response to motion to dismiss); Jones v. Cochise County, 218 Ariz. 372, 375, ¶ 7, 187 P.3d 97, 100 (App.2008) (treating motion to dismiss as one for summary judgment because the attached notice of claim was a document outside the pleadings).¹ Accordingly, we review the trial court's ruling de novo.

I. STATUTES OF LIMITATION DO NOT BEGIN TO RUN AGAINST DECLARATORY JUDGMENT CLAIMS UNTIL RELATED DAMAGE CLAIMS ACCRUE.

¶ 16 A.R.S. § 12–821 provides: “All actions against any public entity or public employee shall be brought within one year after the cause of action accrues and not afterward.” See also Black's Law Dictionary 32 (9th ed. 2009) (defining “action” as “any judicial proceeding, which, if conducted to a determination, will result in a judgment or decree”). A cause of action accrues under A.R.S. § 12–821 when a plaintiff discovers or reasonably should have discovered that an injury was caused by the government's action. See A.R.S. § 12–821.01(B); Stulce v. Salt River Project Agric. Improvement & Power Dist., 197 Ariz. 87, 90, ¶ 10, 3 P.3d 1007, 1010 (App.1999).

¶ 17 The City argued, and the trial court agreed, that CDR's claims accrued more than one year before its lawsuit because it was fully aware of its injuries and discovered or should have discovered they were caused by the City's actions no later than May 2004, when it first submitted a notice of claim to the City. CDR contends the statute of limitations for its declaratory judgment claims did not begin to run until an actual controversy arose between it and the City, which it asserts occurred when the City rejected its application for Parcel R in 20...