Following a failed multi-year effort to rezone the residential portion of split-zoned 330 Rehoboth Ave., property owners have filed a lawsuit against Rehoboth Beach, claiming the city misled the owners when telling them a rezoning request was the proper route to take.

Representing 330 Hospitality LLC, a partnership between Gallo Realty’s Bette Gallo and Lockwood Design and Construction’s Don Lockwood, attorney Rick Berl argues, among other things, his clients were advised to seek the rezoning at the direction of the planning commission. As a result, he said, his clients continued with the rezoning application over a period of years and refrained from seeking any variances from the board of adjustment separately or on a parallel track.

Coming in at roughly 42,500 square feet, the property in question has about 23,000 square feet of C-1 commercial along Rehoboth Avenue and some 19,500 square feet of R-1 residential along State Road.

The proposed rezoning was requested by Lockwood in January 2019. At the time, his company was a 99-year leaseholder, but the planning commission decided not to move forward on the request because the previous owner, J.J. Stein III Inc., filed a complaint against his company claiming breach of contract. Ultimately, in January 2021, 330 Hospitality Group LLC purchased the property, resolving that specific issue.

A short time later in May 2021, 330 Hospitality brought the request back to the planning commission. After multiple delays, and despite a number of self-imposed conditions, the planning commission voted against recommending the rezoning of the residential portion in December, one month shy of three years from the original request. A few months later in March, city commissioners also voted 5-2 against the request.

In the lawsuit, Berl argues the five commissioners who voted against the rezoning erred in their reasoning – Mayor Stan Mills, Commissioner Jay Lagree and Commissioner Toni Sharp were wrong in rejecting the application to preserve the residential character of the neighborhood because the neighborhood includes commercial use, parking areas and high-density residential; Commissioner Susan Gay was wrong because she cites conflicts with the yet-to-be approved 2020 comprehensive plan; and Commissioner Patrick Gossett suggested the rezoning would be inconsistent with the zoning ordinance without any specificity.

“Plaintiff had no knowledge or warning that the city would completely disregard its prior recommendations to seek rezoning as opposed to variances, and had no means of discovering that underlying truth,” said Berl. “The defendants’ denial of the plaintiff’s application is arbitrary, capricious, unsupported by substantial evidence, an abuse of discretion, and erroneous as a matter of law.”

Berl said the two commissioners voting in favor of the application – Commissioners Ed Chrzanowski and Tim Bennett – pointed out the obvious, that the use of the R-1 parcel for parking as it’s been for more than 50 years, long before the neighboring Scarborough Village was created.

Mills declined to comment.