Mercado El Rey K&C File No.: Subject: 4/14/15 Planning Commission Meeting

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1 38 Corporate Park Irvine, CA Telephone (949) Facsimile (949) April 6, 2015 VIA AND U.S. MAIL City of San Juan Capistrano Planning Commission Paseo Adelanto San Juan Capistrano, California Re: Mercado El Rey K&C File No.: Subject: 4/14/15 Planning Commission Meeting Dear Commissioners: We represent Mercado El Rey. We are writing in support of Mercado obtaining Zoning Clearance for its tenant improvement permit. OVERVIEW Mercado has operated a Hispanic convenience store at this location for 3 years. Mercado originally obtained a Tenant Improvement Permit to allow it to build out the entire interior space, consisting of 4,641 s.f. However, the Court later overturned it on the grounds that, 20 years ago, a previous occupant apparently enclosed the back of the building without a permit. In 2014, the City Council advised Mercado to restore the back of the building to unenclosed storage (the condition approved by the permit history on file). Mercado is attempting to do that by making this permit application. However, a neighbor, Dan Friess, is trying to close Mercado down and he has therefore appealed Mercado's Zoning Clearance. HISTORY In the original permit application, the City determined Mercado has a grandfathered right to nonconforming parking because it is not changing the use (the use simply changed from one general retail store to another), nor is it intensifying the use. The previous tenant was a St. Vincent de Paul thrift store. Friess owns commercial properties adjacent to Mercado. Friess challenged Mercado's permit at both the City level and at the Court level. Ultimately, Friess succeeded in overturning Mercado's permit on the basis of one argument alone -- that Mercado cannot use the rear storage as leasable, interior space because St. Vincent's enclosed it 20 years ago without a permit. Mercado is resolving that issue now by un-enclosing the storage area. However, Friess made various other, unsuccessful arguments against Mercado's permit which he is trying to revive now. F:\7458\0001\corr\Planning Commission 001.docx Orange County Los Angeles Sacramento San Diego Inland Empire Las Vegas

2 City of San Juan Capistrano April 6, 2015 K&C File No.: Page 2 Friess lost at both the City level and the Court level on his argument that the City should classify Mercado as a grocery store rather than a convenience store. Grocery store uses have a higher parking requirement than convenience stores, which are considered general retail. Municipal Code section prescribes the minimum required off-street parking for various uses. A general retail use must have one space for every 250 feet of leasable floor area and [f]ood stores, grocery stores, [and] supermarkets must have one space for every 200 square feet of gross floor area. Friess appealed to the original permit to the City, stating as his reason for appeal, The project applicant appears to misrepresent the use of the building to comply with a lower parking requirement standard, while the real intended use has a higher parking standard. The City s planning approval process was based upon misrepresented facts. Friess s letter that accompanied the notice of appeal claimed the Mercado Project was a food store and therefore required one parking space for every 200 square feet of gross leasable area (4,641 square feet) 24 parking spaces total. Moreover, Friess asserted, even as a general retail use, the project would require 19 spaces when the site had only 12, and Mercado could not qualify for legal nonconforming status as to parking because the proposed use constituted an intensification of the prior thrift store use. In a staff report, the Community Services Director explained why staff approved Mercado with its existing parking. [See Staff Report - Tab 1] The parking determination was based on the fact Mercado met the definition of convenience store, which was a use permitted by right in the general commercial zone. The Municipal Code defines a convenience store as a retail establishment [containing] less than [5,000] square feet of gross floor area utilized in whole or in part for the retail sale of a variety of frequently needed personal convenience items such as groceries, delicatessen items, staples, dairy products, pre-packaged foods, beverages, and sundries. (Mun. Code, tit. 9, Appendix A.) Staff interpreted food store, grocery store or supermarket (terms not defined in the Municipal Code), as establishments exceeding the convenience store size (and more typically having 30-to-45,000 square feet), and thus the higher food store parking requirement did not apply. Staff concluded the Mercado Project was a retail sales general use and thus fell into the one space per 250 square feet parking requirement. By that formula, the project should have 19 parking spaces, however the 12 spaces constituted a legal nonconforming use which Dove Capistrano was entitled to maintain so long as the proposed use was not an intensification of the prior thrift store use. Staff referred to Municipal Code section , which allows maintenance of nonconforming uses, and particularly to subdivision (e)(2)(b), which provides, Where parking and loading requirements are the cause for nonconformity, the use shall not be intensified, nor associated structure enlarged... unless additional parking and loading requirements are supplied and maintained to meet the parking requirements, subject to the provisions of Section Parking. Because the Mercado Project was not an intensification of St. Vincent s thrift store use, the nonconforming parking was allowed. F:\7458\0001\corr\Planning Commission 001.docx

3 City of San Juan Capistrano April 6, 2015 K&C File No.: Page 3 The City Council upheld Mercado s permit and the determined that it is properly classified as general retail. COURT Friess then filed a Petition for Writ of Mandate with the Court, again arguing Mercado should be classified as a grocery store. The Court ruled against Friess on this point. [See Tab 2 - Ruling on Petition for Writ of Mandate] The Court ruled, "[T]he City did not abuse its discretion and there is substantial evidence supporting its interpretation of the facts in favor of a 'general retail' designation for the Mercado." Friess raised the following points: (1) the tenant improvement permit was erroneously granted because it would result in an intensified use and increased the floor area ratio, both of which increased the parking requirements under the Municipal Code; and (2) even as under the general retail designation, the 12 parking spaces provided for at the site fall below the sites required by the Municipal Code. The trial court rejected the first set of contentions. It found substantial evidence supported the City Council s finding the project was not a grocery store and the general retail use designation applied. However, the Court ruled in favor of Friess on his argument that the City never authorized St. Vincent's to enclose a storage area and bring it into the leasable space, about 20 years before Mercado leased the store. Accordingly, on this one argument alone, the Court issued a Peremptory Writ of Mandate ordering the City to vacate Mercado's Tenant Improvement Permit. The City Council complied with the Peremptory Writ of Mandate and revoked Mercado's permit on February 4, In the meantime, Mercado applied for a Conditional Use Permit which, if granted, would have allowed Mercado to continue using the rear storage area. The City denied Mercado's Conditional Use Permit application without prejudice. The City Council informed Mercado that it needed to restore the property to its original condition as approved pursuant to permits on file dated 1982 and 1991(by un-enclosing the storage area). On November 3-5, 2014, the parties went to trial on Friess' nuisance and trespass causes of action against Mercado, before the court without a jury. The Court found in favor of Friess on the nuisance claim (on the sole grounds that Mercado does not currently have a permit) and in favor of Mercado on the trespass claim. The Court awarded no money damages to Friess. The only thing that the Court has ordered Mercado to do so far is that it imposed some time restrictions on when Mercado can receive deliveries. Mercado has complied with the Court's order. One of the things that Friess contended at trial is that Mercado is such a busy store that its customers frequently park at his properties, taking up parking spaces that would otherwise be available for Friess' tenants and their customers. The Court heard testimony at trial from Friess and about four of his tenants. However, the Court was unconvinced that parking is a significant problem. [See Tab 3 - Minute Order] The Court observed: The court is not persuaded that the occasional use of a parking space on plaintiff's property by customers of defendant Mercado, by itself, is a substantial F:\7458\0001\corr\Planning Commission 001.docx

4 City of San Juan Capistrano April 6, 2015 K&C File No.: Page 4 interference with plaintiff's property rights sufficient to constitute a nuisance. While it may technically be a trespass, the court does not find that any significant damage has been caused thereby. First of all, the way the parking lot is configured, there is no way for a customer to know that the various businesses are located on separate parcels of real property. To the casual observer, it looks like one big shopping center with a common parking lot. The testimony of [Friess's] tenants to the south of Mercado was decidedly lukewarm in terms of any trouble caused by the occasional Mercado customer parking in front of their unit. The customers of [Friess's] tenants could just as easily occasionally park on the Mercado lot. Finally, the court has declined to award any money damages [to Friess.] NEW PERMIT APPLICATION On November 12, 2014, Mercado filed the current Tenant Improvement Permit application. Mercado seeks to restore the building to conform to the 1982 and 1991 permits, per the City Council's recommendation. On February 19, 2015, the City issued a Zoning Compliance - Plan Check clearance to Mercado, finding Mercado's proposed plans meet all Code requirements. Friess, in his ongoing quest to shut Mercado down, filed this appeal of Mercado's Zoning Clearance. In his appeal, Friess rehashes his old argument that City should classify Mercado as a grocery store rather than a convenience store/general retail -- an argument that Friess has lost on at every stage of this 3+ years battle. THE CITY SHOULD CONTINUE TO CLASSIFY MERCADO AS "GENERAL RETAIL." Appendix A of the City Code defines a "Convenience Store" as "a retail establishment that contains less than five thousand (5,000) square feet of gross floor area utilized in whole or in part for the retail sale of a variety of frequently needed personal convenience items such as groceries, delicatessen items, staples, dairy products, pre-packaged foods, beverages, and sundries. Convenience stores shall not be permitted to sell alcoholic beverages and automotive gasoline on the same premises; if a convenience store sells one of these items, then it shall not be allowed to sell the other." F:\7458\0001\corr\Planning Commission 001.docx

5 City of San Juan Capistrano April 6, 2015 K&C File No.: Page 5 As the City previously determined, and which the Court agreed was proper, Mercado fits the definition of a "convenience store" because it is less than 5,000 s.f. and sells a variety of personal convenience products such as fresh produce, meat, and dry grocery goods, and provides bill pay, money order, and wire transfer services. The City Code does not define a "food store, grocery store or supermarket." However, the City previously determined that a "food store, grocery store or supermarket" use is typically more like a Vons and Ralphs, having an overall size between 30,000 to 45,000 square feet, whereas the Code defines a "convenience store" as being no more than 5,000 square feet. The City determined that Mercado is more like a "convenience store" because it is less than 5,000 square feet. In fact, the current tenant improvement application is for a small store of only approximately 3,500 s.f. Another notable difference is that Mercado only provides hand baskets for its customers' use, not large grocery carts. Customers do not typically come in to do their weekly grocery shopping there. Rather, they buy a few items that they can place into a hand basket of the approximately size and type as used a Rite Aid or a CVS. [See Photos - Tab 4] The typical customer does not stay for 30 minutes or so, like they would at a Vons or Ralphs. Rather, they are usually in and out within 10 minutes or less. Mercado is Not Intensifying the Use Mercado is not intensifying the use over the previous St. Vincent de Paul Thrift Store. The St. Vincent de Paul used 3,715 out of the 4,641 square feet as retail sales area, using the remainder for storage (where the public is not allowed to shop). Mercado uses substantially less space, in that it only uses 2,315 s.f. for retail sales. Moreover, Mercado is modifying the building so that the storage area that was previously enclosed is being turned into an outside storage area, and not included in the occupied, interior square footage. Mercado decreases the retail sales floor area by 45% as compared to the thrift store. Furthermore, it decreases the overall leasable square footage by approximately 1/3. Mercado's customers stay at the store for less time than the St. Vincent de Paul customers did. The St. Vincent customers typically stayed for minutes, perusing the shelves for clothes and household goods. Conversely, Mercado's customers usually come in knowing exactly what items they want to buy, and stay for 10 minutes or less. The thrift store had approximately 10,000 products available for sale at a time, with inventory constantly changing. Mercado, on the other hand, averages 3,000 to 4,000 products SKUs. As far as Mercado's use of the premises over the last three years, the parties litigated the fact of whether Mercado's use is substantially interfering with Friess or any of his tenants. After a three day court trial, the judge determined that there is nothing about the parking situation which is causing any significant impacts to Friess or his tenants. Rather, the court observed that the parking lot just appears to be one, big contiguous parking lot between the properties, with no F:\7458\0001\corr\Planning Commission 001.docx

6 City of San Juan Capistrano April 6, 2015 K&C File No.: Page 6 indications to the general public that they are separately owned parcels. Even after hearing testimony from Friess' tenants, the court determined that the evidence Friess presented about parking impacts was "decidedly lukewarm" and did not arise to the level of a claim. The court pointed out that sometimes the customers of Friess' tenants parking in Mercado's spaces, and vice versa. The judge also decided against Friess on his claim that he has been unable to rent his neighboring unit because of impacts by Mercado. The judge found that this is entirely speculative and that there is no credible evidence linking parking impacts to Friess' ability to rent the neighboring space. Moreover, Friess has since been able to lease that space after trial concluded. The only things that the court found problematic are 1) that Mercado needs to get a new permit to un-enclose the rear storage area (which Mercado is trying to do here), and 2) the number of delivery trucks coming to the Mercado store. The court found the best way to address the delivery situation to ensure Mercado continues to operate while reducing potential impacts on the neighbors is to limit the hours that Mercado can receive deliveries to before 7:30 a.m. and after 6:00 p.m. Mercado has been complying with the delivery hour restrictions since they went into effect in November In sum, the court found that there is nothing about Mercado that is causing any problems to the neighbors in its 3+ years of operation, other than the deliveries, which issue has since been addressed. The court has also stated that Mercado needs to resolve its permit issue in order to continue operating. Mercado is attempting to do so by filing this permit application to restore the building to the condition as it was approved in 1982 and As far as the number of employees working at Mercado's store, Mercado did not anticipate when it first opened up 3 years ago how successful this store would be. Mercado is pleased with the success of the SJC store. Friess claims that Mercado intentionally misrepresented to the City how busy the store would be when it first applied for a permit 3 years ago. This is not true. Mercado has another store in Lake Forest that it operated before opening the San Juan Capistrano store. Mercado provided the City with information regarding the anticipated number of employees and customers based on the history of its Lake Forest store. In any event, we now have 3 years' worth of history at the SJC location, and Friess lost in court on the issue of whether the number of employees or customers at Mercado is having any substantial negative impacts on either Friess or his tenants. The City should find the same and approve Mercado's permit. CONCLUSION Mercado welcomes any questions that the Planning Commissioners may have about the store or its permit application. If you have any questions, please contact Ziad Faraj at (323) or ziadf22@yahoo.com so that Mercado can provide you with any information requested before the Planning Commission meeting. We also welcome each of the Planning Commissioners to come down to the store for a site visit. F:\7458\0001\corr\Planning Commission 001.docx

7 City of San Juan Capistrano April 6, 2015 K&C File No.: Page 7 The success of Mercado's store is a testament to the fact that Mercado is providing a much needed service to underrepresented parts of the SJC community. Mercados' customer base is largely Hispanics and senior citizens living on fixed incomes. Thank you for your consideration. Very truly yours, Kring & Chung, LLP Laura C. Hess (lhess@kringandchung.com) LCH/nc Enclosures: Tab 1-8/16/11 Staff Report Tab 2-1/4/13 Ruling on Petition for Writ of Mandate Tab 3-11/17/14 Minute Order Tab 4 - Photos F:\7458\0001\corr\Planning Commission 001.docx

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