Rare $10.3M win for city against state over redevelopment funds

The Legal Aid Society of San Mateo County has won a rare victory in a redevelopment case.

The 3rd District Court of Appeal ruled Tuesday the state owes $10.3 million in low-income housing funds following Gov. Jerry Brown's 2011 dissolution of redevelopment agencies. The court found these were encumbered, legally restricted funds under a 1990 agreement with Redwood City. Legal Aid Society of San Mateo County v. Department of Finance, C076431 (3rd DCA, filed May 8, 2014).

Many cities, redevelopment successor agencies or other organizations have sued the California Department of Finance on similar grounds in recent years, often seeking to recover funds for low-income housing or business development. The department easily won most of these cases. A department spokesman declined to comment.

But Michael J. von Loewenfeldt, who represented Redwood City as a real party in interest, said there were three key differences in the current case that would be hard to duplicate for other plaintiffs. Many of the complaints that failed involved agreements between redevelopment agencies and "sponsoring agencies, like the state," he said. These were the specific agreements the Legislature banned. Some of these agreements were also short on specific language and were often negotiated during or just before the 2011-2012 period when Brown and the Legislature abolished redevelopment, he said.

By contrast, said the partner with Wagstaffe, von Loewenfeldt, Busch & Radwick LLP, the agreement in question in this case dated from 1990 and involved a third party, the Legal Aid Society. It also included specific language, including the dollar amount at stake: $10,272,916.

The case grew out of a 1984 legal settlement between the Legal Aid Society and the local redevelopment agency. This was amended in 1985 and 1990.

"The Legislature was not attempting to wipe out existing agreements," von Loewenfeldt said.

Redwood City and the Legal Aid Society argued the case seeking to recover the funds in tandem. The dense, 36-page ruling came just over two weeks after the Dec. 14 oral argument.

Valerie L. Feldman, a staff attorney with the Public Interest Law Project who helped represent the Legal Aid Society, called it a "terrific decision." Both attorneys said they left oral argument thinking they would likely win.

"They didn't have many questions for us. That's always a good sign," von Loewenfeldt said. "We were very optimistic."

The unanimous order by Justice William J. Murray Jr. reversed a 2014 order from the San Mateo County Superior Court. Murray's ruling went through a multi-step argument to find "the 1990 agreement constituted an enforceable obligation" that was not voided by the changes to redevelopment. He also found the money was "legally restricted as to purpose ... contractually dedicated."

Von Loewenfeldt said that to his knowledge, there is no specific project the money is earmarked for. But he said it will go to build housing.

"The housing crisis is worse than ever," he said.