The First Amendment Right To ‘Greenmail’ Developers
Happy Tuesday and welcome to another edition of Rent Free. This week, the newsletter goes to housing court for a look at a few recent, consequential court decisions and lawsuits. It includes:
- The Montana Supreme Court overruled a district judge’s blocking of new laws that allow duplexes and granny flats in single-family neighborhoods.
- A new lawsuit from a California homeowner challenging her city’s inclusionary zoning fees.
But first! Our lead story is a look at a new federal appeals court opinion finding that developers have a First Amendment right to file endless environmental lawsuits against a competitor’s projects.
The First Amendment Right to ‘Greenmail’ Developers
California’s Environmental Quality Act (CEQA) requires that government agencies study the environmental impacts of “projects” they undertake, which includes the approval of private developments that they have some discretion over.
The law also gives the general public the right to sue government agencies for allegedly approving projects without conducting a thorough enough study of those environmental impacts.
The idea was that concerned citizens with easy access to the courts would be the ultimate check on bureaucrats casually greenlighting environmentally ruinous projects.
An unintended consequence of CEQA is that anyone can file a lawsuit to wring concessions out of project sponsors, including concessions that have nothing to do with protecting the environment.
Because California’s strict zoning laws frequently require developers to seek some sort of discretionary government approval, this opens up a lot of opportunities for cynical actors to use CEQA to shake down builders.
Indeed, this practice is common enough to have a nickname: “greenmailing.” Everyone from labor unions to “equity” groups, and even developers themselves, have used it to pressure project sponsors into providing some sort of payout.
In recent years, developers who’ve been hit with greenmailing suits have responded with lawsuits of their own. In federal countersuits, they’ve alleged that they’re the victim of illegal extortion efforts that violate the Racketeer Influenced and Corrupt Organizations (RICO) Act.
But on Thursday, the U.S. Court of Appeals for the 9th Circuit dealt a blow to anyone who might hope RICO would save them from CEQA, when it held that a seemingly very obvious case of greenmailing was protected by the First Amendment’s Petition Clause.
‘It’s Going To Take a Check To Make This Go Away’
For the past decade, the developer Relevant Group has been building hotels in the Hollywood neighborhood of Los Angeles. Time and again, after the city approved the company’s projects, another neighborhood developer filed petitions arguing that the city’s approval violated CEQA by studying traffic, noise, and other impacts enough.
The litigious developer in this case is Stephan Nourmand, principal of Sunset Landmark Development, which owns and operates the Hollywood Athletic Club near Relevant’s projects.
Nourmand’s company dropped its lawsuits challenging the approval of two of Relevant’s hotel projects after the developer agreed to pay $5.5 million.
When Nourmand sued over the approval of another of Relevant’s hotel projects in 2018, Relevant’s lawyer met with him to try and convince him to drop the lawsuit. According to court filings, Nourmand told the lawyer “You know the drill. It’s going to take a check to make this go away.”
Frustrated with what they describe as demands for ransom payments, Relevant sued Nourmand and his company in 2019, arguing that his “sham lawsuits” violated RICO.
In an opinion issued last Thursday, the 9th Circuit upheld a lower court’s dismissal of the case, citing a judicial doctrine that requires courts to construe statutes to “avoid burdening conduct that implicates the Petition Clause of the First Amendment.” The petitioning conduct in this case would be filing CEQA lawsuits.
In order to overcome that bar, Relevant needed to show that Nourmand’s lawsuits were “objectively baseless.” The 9th Circuit reasoned that they weren’t, in part because Relevant elected to settle several of these lawsuits.
In effect, by giving into Nourmand’s demand for cash payments, Relevant undercut their own RICO claim that they were being illegally extorted. The success of the alleged shakedown became evidence against it ever having happened.
The 9th Circuit did concede that “Relevant raises several facts suggesting that Defendants had an improper purpose in bringing their actions”—citing Nourmand’s comment about how a check would make his lawsuit go away.
It nevertheless said that it couldn’t consider Nourmand’s motives so long as the initial lawsuit cleared that low “objectively baseless” bar.
The CEQA Trap
The 9th
Article from Latest
The Reason Magazine website is a go-to destination for libertarians seeking cogent analysis, investigative reporting, and thought-provoking commentary. Championing the principles of individual freedom, limited government, and free markets, the site offers a diverse range of articles, videos, and podcasts that challenge conventional wisdom and advocate for libertarian solutions. Whether you’re interested in politics, culture, or technology, Reason provides a unique lens that prioritizes liberty and rational discourse. It’s an essential resource for those who value critical thinking and nuanced debate in the pursuit of a freer society.