Thirty years after Arcadia annexed almost 80 acres into the City of Morgan Hill urban service area, the Sixth District Court of Appeal upheld the City’s right to restrict development on 69 of those acres, finding, among other items, that the City’s goal of discouraging non-contiguous development and urban sprawl was a legitimate exercise of its police powers. In, the court held an ordinance restricting the density of development on lands in the City’s service area, but outside its core, did not give rise to spot zoning or violate Arcadia's right to equal protection of the law.

Located just south of Silicon Valley, Morgan Hill is a small community that in the 1970s started experiencing a dramatic population explosion. To address concerns about the City's ability to provide services to outlying areas and address growing concerns regarding urban sprawl, the City adopted a Residential Development Control System (“RDCS”) that awarded housing allotments for new residential development under a formula designed to control the quality, type, distribution and quantity of new residential housing.

When expansion of Silicon Valley in the 1980s resulted in continued growth in Morgan Hill, the City sought refinements of the RDCS and in 1990 adopted Measure P. Measure P included a Density Restriction that limited the density of properties added to the urban service area between March 1, 1990, and the effective date of Measure P, to no more than that allowed by the county general plan where the property was located prior to annexation. The Arcadia property, which was annexed into the City’s urban service area in 1990, was subject to the Density Restriction.