A West Hollywood-based real estate company has sued the city of Los Angeles, saying appointees of Mayor Eric Garcetti violated state law by rejecting plans for a 577-unit apartment complex in South Los Angeles.

Lawyers for District Square LLC said in their lawsuit that the South Los Angeles Area Planning Commission, a five-member panel made up of mayoral appointees, violated the Housing Accountability Act by denying their client’s application to build a six-story residential project.

The Housing Accountability Act prohibits cities from rejecting housing developments that comply with local planning laws unless they conclude there is a danger to public health or safety. In their filing, attorneys for the developer said the project, also known as District Square, adhered to city rules and would have helped L.A. achieve its long-term housing goals.

“Indeed, this case presents the paradigmatic example of a local government contributing to this state’s housing crisis by denying a new housing development without consideration of the economic and social costs of its actions,” they wrote.


Matthew Hinks, a lawyer for District Square, did not respond to multiple inquiries about the lawsuit, which calls for a judge to order the city to approve the project.

A spokesman for City Atty. Mike Feuer declined to answer questions about the case, saying his office had not received the filing. But Damien Goodmon, one of the activists who opposed District Square, said the developers have no business talking about abiding by the law.

District Square LLC is managed, at least in part, by real estate developer Arman Gabay, who is facing bribery and wire fraud charges in a federal criminal case involving county leases. The developer has pleaded not guilty and is awaiting trial.

Gabay and his company have also received multiple default notices from the city, saying he has failed to repay $6.3 million in taxpayer loans. City officials are currently in negotiations with the developers about those defaults, but nothing has been paid back so far, said Jamie Francisco, spokeswoman for the city’s Economic and Workforce Development Department.


Goodmon, executive director of the Crenshaw Subway Coalition, said the city should foreclose on the property, seize the site and ensure that any development is 100% affordable for neighborhood residents. “They should not be negotiating,” said Goodmon. “Why would we even allow this man to continue to own this valuable piece of property?”

The District Square development site, pictured in 2018. The company behind the District Square project said Los Angeles officials improperly rejected their plan for a 577-unit residential complex on the property, which is located at Crenshaw and Obama boulevards. (Allen J. Schaben / Los Angeles Times)

Councilman Herb Wesson, who represents the area, called last year for the city to reject District Square, saying the project would result in higher rents for the area’s low-income households, displacing lifelong community residents. On Thursday, the councilman did not respond to questions about whether the city violated state law, saying instead that in the midst of a housing crisis, “it’s not enough to just build.”

“We need to build housing that working people can afford,” Wesson said in an emailed statement. “If the neighborhood’s current residents can’t afford it, we shouldn’t build it.”


The District Square lawsuit is the latest twist in a long running saga involving Wesson, who is running for a seat on the county Board of Supervisors, and the Gabays, who have donated repeatedly to Wesson’s campaigns and his political causes.

In 2010, Wesson signed off on a plan to provide more than $26 million in taxpayer assistance to the Gabays, who had promised to build a two-story shopping center featuring a Target, a supermarket and other businesses. The Gabays used a portion of those funds to demolish a shopping center on the site, pushing out a Ralphs supermarket.

Construction never began. In 2015, a city agency headed by former City Councilwoman Jan Perry -- who is now running against Wesson in the county supervisor’s race — began issuing default notices to the Gabays, saying they had failed to comply with the terms of their loans.

Wesson tried to salvage plans for the shopping center, without success.


In 2018, FBI agents arrested Gabay, accusing him of bribing a county real estate official. At the same time, the Gabays worked with Garcetti aides to retool their project, transforming it into a mostly residential development.

The city’s planning department endorsed the reworked project. But Wesson, hearing opposition from his constituents, came out against it.

When District Square came before the South Los Angeles planning panel, the city’s lawyer warned the commission that a failure to comply with the Housing Accountability Act could leave taxpayers with the bill for the developer’s legal costs, and possibly even financial penalties.

The commission voted unanimously to reject District Square, saying they were concerned with gentrification and the project’s lack of affordable housing. They also disregarded their lawyer’s request that they delay a vote, allowing him to write up a legal rationale for turning down the application.


“The commissioners … simply ignored both the law and the advice and direction given by planning staff and the deputy city attorney,” wrote Hinks, the attorney for District Square.

Garcetti spokesman Alex Comisar declined to discuss the allegations, saying his office does not discuss ongoing litigation. But Perry, who has since left City Hall, said District Square’s developers had “a lot of nerve.”

Even after receiving taxpayer funds, the developers have not built the original shopping center required as part of the original loan, she said.

“They just moved some dirt around,” she said. “They never built the project.”