Written by Star Lightner*
Each year, we grapple with how to select the top ten real estate cases for our annual overview. The impact of COVID-19 and the pandemic on the courts appears to continue, with fewer real estate cases overall than in past years, and therefore fewer that might be deemed truly significant. Thus, while narrowing the list down to 10 cases was still difficult, we have fewer "related cases" and "honorable mentions" again this year.
The cases in 2023 represented a slightly narrower offering of real estate issues than in years past, with housing—both in the land use and CEQA contexts—figuring even more prominently. These cases involved compliance with the housing element, historic preservation, general plan consistency, and an application that had lapsed under the Permit Streamlining Act. Certainly, the most significant case was a Clean Water Act case decided by the U.S. Supreme Court, which is likely to significantly change the way wetlands are regulated.
This article also includes cases involving development impact fees and a city's police power, exemptions from rent control for certificates of occupancy under the Costa-Hawkins Act, whether a letter of credit constitutes a tenant's property in an attachment proceeding, and a lease provision that ignored the Rule Against Perpetuities. Several pandemic-era force majeure cases round out the state court offerings. As always, we have included some "honorable mentions," one of which involves reliance on a subsequently invalidated quiet title judgment, while the other addresses an inverse condemnation claim relating to decades-old developer improvements.
While selecting cases for inclusion is inevitably subjective, the cases addressed below, including the "related cases" and "honorable mentions," met our standard for inclusion: widespread significance for the practice of real property law in California. Accordingly, we offer the following as the most significant real estate cases of 2023.01
1. SACKETT V. ENVIRONMENTAL PROTECTION AGENCY02
This Clean Water Act ("CWA") case sees the United States Supreme Court replacing the "significant nexus" rule governing the regulation of wetlands that resulted from the plurality opinion in Rapanos v. United States.03
Michael and Chantel Sackett wanted to build a home on their small lot near Priest Lake in Bonner County, Idaho. While backfilling the property in preparation, the Environmental Protection Agency ("EPA") ordered them to restore the site, with $40,000 per day penalties for noncompliance. Interpreting "the waters of the United States" under the CWA, the EPA included "wetlands adjacent to those waters,"04 and it defined "adjacent" to mean neighboring as well as contiguous. The EPA also asserted jurisdiction over wetlands adjacent to non-navigable tributaries if they
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had "a significant nexus to a traditional navigable water."05 A 30-foot road separated the Sackett's lot from an unnamed tributary that fed into a non-navigable creek, which, in turn, fed into Priest Lake, an intrastate body of water designated as traditionally navigable.
The Sacketts filed suit alleging that the EPA lacked jurisdiction over their property because any wetlands on it were not "waters of the United States."06 The Ninth Circuit ultimately upheld a judgment in the EPA's favor, finding that "the CWA covers adjacent wetlands with a significant nexus to traditional navigable waters and that the Sacketts' lot satisfied that standard."07 The Supreme Court granted certiorari "to decide the proper test for determining whether wetlands are 'waters of the United States.'"08
While applauding the success of the CWA, the Court lamented the uncertainty associated with the term "waters of the United States," questioning whether its broad definition could encompass "ditches, swimming pools, and puddles."09 The Court also cautioned that the CWA imposed "'crushing' consequences 'even for inadvertent violations.'"10 Consequently, "regulated parties have focused particular attention on the Act's geographic scope."11 At the time the Sacketts received the compliance order, the EPA and the Army Corps of Engineers both defined "waters of the United States" as "[a]ll ... waters" that "could affect interstate or foreign commerce,"12 asserting jurisdiction over wetlands "adjacent" to covered waters, which included those "bordering, contiguous, or neighboring" as well as those separated from covered waters "by man-made dikes or barriers, natural river berms, beach dunes and the like."13
The Court first upheld regulation of wetlands in United States v. Riverside Bayview Homes, Inc.,14 where it reasoned that "the transition from water to solid ground is not necessarily or even typically an abrupt one."15 In Rapanos, four justices found that the CWA should apply to wetlands only where they were "as a practical matter indistinguishable from waters of the United States," while four justices would have deferred to the government's determination that the wetlands at issue were covered under the CWA. The ninth, Justice Kennedy, introduced the "significant nexus" test whereby a significant nexus must exist between wetlands and covered waters, with a nexus being established where "the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of those waters."16
The Rapanos plurality decision resulted in an expansion of agency jurisdiction over wetlands based on "a lengthy list of hydrological and ecological factors,"17 such that "almost all waters and wetlands across the country theoretically could be subject to a case-specific jurisdictional determination...."18 Although a more sweeping rule was repealed in 2019, the proposed replacement codified the Rapanos test by extending jurisdiction to wetlands "that either have a continuous surface connect to categorically included waters or have a significant nexus to interstate or traditional navigable waters."19 The Court here expressed concern that agency jurisdiction now covered "'270-to-300 million acres' of wetlands and 'virtually any parcel of land containing a channel or conduit ... through which rain water or drainage may occasionally or intermittently flow,'"20 subjecting "'the vast majority of the nation's water features' to a case-by-case jurisdictional analysis."21 The Court speculated that the difficult, time consuming, and expensive process would lead many landowners to simply choose to not build anything.
Analyzing the text of the CWA, which defines "navigable waters" as "the waters of the United States,"22 the Court found only the term "navigable waters" to have had a well-established meaning when the CWA was enacted, but not "the waters of the United States," which the Court stated was "decidedly not a well-known term of art."23 While trying to navigate what it deemed "frustrating drafting," the Court found the deliberate use of the plural term "waters" to mean a "body of water," which is why traditionally "waters of the United States" meant "navigable waters." The Court acknowledged that the CWA now extends beyond "navigable waters," but "refused to read 'navigable' out of the statute." The Court also noted that it requires a clear statement from Congress regarding the scope of "waters of the United States."24 Finding case law and other provisions of the CWA25 to support its interpretation, the Court held that "the Rapanos plurality was correct: the CWA's use of "waters" encompasses "only those relatively permanent, standing or continuously flowing bodies of water 'forming geographic[al] features' that are described in ordinary parlance as 'streams, oceans, rivers, and lakes.'"26
The Court disagreed with the EPA's argument that "water" is "naturally read to encompass wetlands" because the "presence of water is 'universally regarded as the most basic feature of wetlands,'"27 finding this argument "proves too much"28 in that it could include puddles and isolated ponds, which have been held not to be covered by the CWA.29 The Court acknowledged its interpretation would foreclose coverage of all wetlands but found it must harmonize § 1344(g)(1), which defines "navigable waters" as including "wetlands adjacent thereto"30 and thus "presumes that certain wetlands constitute 'waters of the United States,'"31 with § 1362(7), which defines "navigable waters" as "waters of the United States." The Court found it to be an improper expansion of the definition of "navigable waters" for § 1362(7) to mean "waters of the United States and adjacent wetlands." Thus, it concluded that wetlands "must qualify as 'waters of the United States' in their own right," meaning
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"they must be indistinguishably part of a body of water that itself constitutes 'waters' under the CWA."
The Court found this interpretation to be consistent with § 1344's use of the term "adjacent," even though it conceded that dictionaries include both "contiguous" and "near" in the definition of "adjacent." The Court explained its exclusion of the latter portion of the definition from its interpretation by stating that "considering statutory language is not merely an exercise and ascertaining 'the outer limits of a word's definitional possibilities.'"32 The Court's holding requires a party asserting jurisdiction over adjacent wetlands to establish two things: first, that the adjacent body of water constitutes "waters of the United States," which the Court defined as "a relatively permanent body of water connected to traditional interstate navigable waters," and second, "that the wetland has a continuous surface connection with the water, making it difficult to determine where the 'water' ends and the 'wetland' begins."33
Justice Thomas's concurrence, in which Justice Gorsuch joined, opined that the majority opinion did not go far enough because it did not determine the extent to which the terms...
