The Fourth Appellate District recently held that a local agency's denial of an application to develop a 2.85 acre parcel in the middle of a developed residential area can constitute a compensable regulatory taking under the Penn Central Transp. Co. v. City of New York (1978) 438 U.S. 104 ("Penn Central") case. After a group of neighbors requested that the City make the property open space, the City imposed a "residential, very low" ("RVL") zoning designation, limiting development on the property to one dwelling unit per 20 acres. The previous zoning allowed six dwelling units per acre, and all surrounding property allowed four dwelling units per acre. The owner filed an application with the City for a general plan amendment and zoning amendment, among other permits, to build four dwelling units on the property. After staff and the planning commission recommended denial of the application, the City Council denied the application.

The owner filed a claim in federal court alleging spot zoning and inverse condemnation, and then filed an action in state court and dismissed the federal action. The parties agreed to an order bifurcating the trial, so the writ of mandate claim regarding spot zoning was heard separately from the inverse condemnation claim. In the writ of mandate phase, the trial court found that the RVL zoning was arbitrary and capricious as applied to the property, because it was an island in an ocean of less restrictive zoning, and in practicality the property had been zoned as open space and there was evidence that the City intended it to be open space. In the inverse condemnation phase, the trial court issued a judgment finding that the City had deprived the owners of all economically viable use of the property and rejected the City's reasons for zoning the property RVL. The City appealed both trial court judgments.