City of Dana Point v. New Method Wellness, Inc.

Citation: Not availableDocket: G056741

Court: California Court of Appeal; September 13, 2019; California; State Appellate Court

Original Court Document: View Document

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The City of Dana Point filed a nuisance action against New Method Wellness, Inc. and NMW Beds, LLC, arguing that the use of three residential properties for drug treatment services violated local zoning ordinances. The court found that the properties were indeed being used as part of a drug treatment facility, as evidenced by their advertisement as sober living homes on New Method's website, which described the properties as integral to its treatment services. The residents were under strict regulations, including 24-hour supervision, mandatory drug testing, and adherence to a detailed code of conduct. The court issued an injunction against the defendants, affirming that the properties constituted a nuisance per se since their use was unauthorized by the zoning ordinance, and no exceptions applied. The defendants’ legal challenges to the injunction were unsuccessful, leading to the court's affirmation of the ruling. All properties are owned by NMW Beds, and while not all residents are clients of New Method, the majority are, with transportation provided exclusively to New Method's facility.

Dana Point obtained an injunction against defendants to prevent unauthorized business operations on specific Properties, which the court determined were functioning as a drug treatment facility without proper licensing. The court ruled that New Method and NMW Beds operated as a single entity, disregarding their corporate separateness, and found that the Properties were part of New Method's operations. Since the Properties lacked the necessary licenses, their use violated the Municipal Code, classifying it as a nuisance subject to abatement.

The court permanently enjoined the defendants from operating the Properties as part of a drug treatment facility without a valid California state license. The defendants appealed, primarily contesting whether the Properties were part of the treatment center. The court upheld its finding, supported by substantial evidence, that the Properties were indeed used for this purpose, making the operation a nuisance per se under Dana Point's zoning ordinance, which prohibits such uses in residential zones.

The court noted that the Health and Safety Code section 11834.23, which preempts local ordinances for licensed recovery facilities serving six or fewer individuals, did not apply here since the Properties did not meet these criteria. The court emphasized that a legislative body can declare certain property uses a nuisance, and Dana Point's ordinance explicitly prohibits non-permitted uses in residential zones. Thus, the operation of a drug treatment facility was deemed a public nuisance, allowing for an injunction without requiring proof of irreparable injury. Evidence supporting the court's conclusion included the New Method website indicating the Properties were marketed as part of the treatment center and the highly regulated environment of the residents. Conflicts in evidence were resolved in favor of the court's judgment.

The Properties are deemed part of New Method’s drug treatment facility, aligning with California regulations allowing a licensee to provide housing and treatment services either in the same building or different buildings, provided they are licensed appropriately. The court confirmed that New Method operated within this framework, providing treatment in one facility and housing in another, all under the same program. Although the Properties are owned by a different entity, NMW Beds, this ownership is not relevant to the nuisance action at hand, which focuses on usage rather than ownership. The court applied the single-enterprise doctrine, allowing liability to extend between the two corporate entities due to their interdependent operations, shared ownership, and unified management.

Despite the corporate distinction, substantial evidence supported the conclusion that NMW Beds operates as an instrumentality of New Method, effectively functioning as a single enterprise. The relationship is underscored by shared marketing, branding, and clientele. However, the critical issue remains that the Properties' use as part of the drug treatment facility violates relevant zoning ordinances. 

Nonetheless, Health and Safety Code section 11834.23 offers a potential defense against local zoning restrictions for facilities serving six or fewer individuals, considering them a residential use. However, the defendants have not met the prerequisites for this defense, as there is no evidence the Properties served six or fewer individuals, and the section can only be invoked by a licensed facility. Thus, the defense may be insufficient.

Licensed individuals operating alcoholism or drug abuse recovery facilities may invoke protections under Health & Saf. Code § 11834.21, while unlicensed individuals cannot. The Properties in question were unlicensed, which undermines the defendants' claims. The core debate revolves around whether the Properties required a license, with Dana Point arguing their unlicensed status constitutes a nuisance. The court’s analysis aligns with this viewpoint. Defendants claim exemption from licensure under Health and Safety Code § 1505(i) for facilities that provide group living arrangements without care or supervision. However, since NMW Beds provided 24-hour supervision, the Properties do not meet the exemption criteria.

The nuisance issue is not solely about licensure; it concerns the permissibility of the Properties' use under local zoning laws. A state license does not automatically authorize operation in a residential zone. The relevant inquiry is whether the Properties' use is allowed by the zoning ordinance. Even hypothetically, if the Properties were recovery houses exempt from licensing, their operation could still constitute a nuisance if not permitted under the zoning ordinance. Municipal Code § 9.75.270 defines “Group Dwellings” but requires a conditional use permit, which the defendants lack.

Defendants also argue the Properties qualify as “Group Homes,” defined as self-supporting, resident-run arrangements. However, the Properties do not meet this definition, as they are governed by strict rules from NMW Beds. Even if they were considered group homes, the defendants failed to establish how such a classification aligns with permitted uses in the zoning ordinance. Overall, the defendants’ arguments lack sufficient legal grounding.

Dana Point's lawsuit against New Method Wellness, Inc. is upheld, as the court finds that the claims presented by defendants lack merit. The court clarifies that Dana Point is not violating Health and Safety Code section 11834.01 by enforcing its zoning ordinance; it is not licensing a drug treatment facility but rather ensuring compliance with local regulations. The defendants' assertion that the injunction infringes on the residents' rights under the Americans with Disabilities Act (ADA) and the Fair Housing Act (FHA) is also rejected. The court notes that there is no evidence of discrimination in housing based on disability, as the zoning ordinance does not prevent residents from renting or buying properties. Furthermore, the defendants' reference to the ADA's provisions regarding drug use is deemed irrelevant since no employment relationship is involved.

The court also dismisses the defendants’ claim of regulatory taking under the Fifth and Fourteenth Amendments, stating that the zoning ordinance does not deny economically beneficial use of the properties, which remain viable for residential use. The court emphasizes that New Method Wellness cannot claim property rights to operate an unlicensed drug treatment facility when such operation is not permitted under local zoning laws. The judgment is affirmed, and the defendants' motion for judicial notice regarding a federal complaint is denied as irrelevant to the appeal. Dana Point is awarded costs incurred during the appeal. The opinion is certified for publication.