How Untimely Service Can Be Deadly To Your Takings Claim

If you ask ten attorneys what keeps them up at night, at least six of them will recount nightmares about missing a filing deadline.  I know what you're thinking.  How hard can it be?  You just look in the Code, find the applicable limitations period, and then you're off.  However, as with all things law related, it very rarely is that simple.  In a recent decision issued by the Second Appellate District, the court explained why filing deadlines are not the only thing practitioners should have nightmares about.  In Excelaron, LLC v. County of San Luis Obispo, the court of appeal upheld the dismissal of plaintiffs' inverse claim with prejudice, because the timely filed complaint was not timely served

Plaintiff, the owner of various mineral estates in an unincorporated area of the County of San Luis Obispo, applied for a conditional use permit to drill and operate oil wells on its various estates.  The County, however, denied the application, and in its notice of final action stated: 

"Pursuant to Section 1.09.040 of the San Luis Obispo County Code, please be advised that the time within which judicial review must be sought is governed by the provisions of California Code of Civil Procedure section 1094.6 and Chapter 1.09 of the San Luis Obispo County Code (copy enclosed)." 

Both the County Code section 1.09 and section 1094.6 state that a complaint must be filed within 90 days of the final decision; they are silent on the issue of service.  Within 90 days of the decision, consistent with the requirements in the County's Code and 1094.6, the plaintiff filed a petition for writ of mandate and complaint for inverse condemnation.  Two days later, a first amended petition and complaint was filed adding three additional petitioners and a new claim under the California Environmental Quality Act (CEQA).  The complaint sought approximately $6.24 billion in damages (that's with a "b").

129 days after the final decision was issued, the complaint was served on the County.  The County subsequently demurred to the entire petition and complaint on the ground that the plaintiffs had failed to comply with the service requirement in Government Code section 65009.  Section 65009, which only applies to a certain segment of land use decisions, including decisions relating to conditional use permits, states that except as provided therein, "no action or proceeding shall be maintained . . . by any person unless the action or proceeding is commenced and service is made on the legislative body within 90 days after the legislative body's decision[.]"  Based on the failure to comply with the service requirement in section 65009, the trial court granted the demurrer without leave to amend.

On appeal, plaintiff asserted four arguments:  (1) the County was estopped from relying on section 65009; (2) section 65009 was preempted by County Code section 1.09; (3) the County waived the protection of section 65009 by enacting County Code section 1.09; and (4) section 65009 does not apply to CEQA or inverse condemnation claims.

Plaintiff's estoppel argument was premised on the language in the County's final decision regarding section 1094.6 and County Code section 1.09.  Plaintiff asserted that by specifically identifying sections 1094.6 and 1.09, the County knowingly and willfully misled the plaintiffs into believing that the claims would be timely so long as they were served within 90 days of the final decision.  The court of appeal made short work of this argument, however, as it found that this exact argument had already been rejected in Honig v. San Francisco Planning Dept. (2005) 127 Cal.App.4th 520 and Beresford Neighborhood Assn. v. City of San Mateo (1989) 207 Cal.App.3d 1180.  In light of these authorities, the court of appeal stated that "[a]lthough it might be better practice to include a reference to section 65009, the County's failure to do so here provides no basis for us to deem it estopped from asserting the statute as a defense."  The court similarly rejected plaintiff's waiver and preemption arguments.

Finally, the court of appeal turned to the question of whether section 65009 applied to the CEQA and inverse claims.  The court concluded that the CEQA claim was barred, relying on the plain language of section 65009 and Royalty Carpet Mills, Inc. v. City of Irvine (2005) 125 Cal.App.4th 110, since the claim "essentially and necessarily" challenged the County's decision to deny the application.  The court reached the same conclusion with respect to the inverse claim, explaining that the gravamen of the claim hinged "on the validity of the County's decision to deny the application[.]"  Thus, the court of appeal concluded that the inverse "cause of action is subject to section 65009's statute of limitations."   

Accordingly, because the petition and complaint was not served within 90 days, the court of appeal affirmed the dismissal of a timely filed inverse claim that had an estimated value of $6.24 billion, with prejudice.  Now that is a nightmare scenario.   

Motions in Limine May be Used in Eminent Domain Proceedings to Determine Party's Interest in Property

"Motions in limine" are motions made shortly before trial, and they're typically filed in an attempt to limit the introduction of evidence to the jury.  They are a powerful tool in eminent domain proceedings, and can be used to limit an appraiser's comparable sales, valuation methodology, or even the expert's entire testimony.  In a recent unpublished California Court of Appeal decision, Verizon of California v. Carrick (2014 Cal. App. Unpub. LEXIS 5030), the Court even approved of the use of an in limine motion to determine whether a party had a compensable interest in the property being condemned.  

Background

In Verizon v. Carrick, Verizon filed an eminent domain action to acquire an easement to place underground fiber-optic cables along a road.  The area at issue was privately owned, and Verizon named all the private property owners in the condemnation complaint.  After securing an order for prejudgment possession to start the installation work, a home owner's association filed a motion to vacate on the ground that the road was owned and maintained by the association.  The association also challenged Verizon's right to take the property, and ultimately succeeded in requiring Verizon to secure approval from the California Public Utilities Commission (CPUC) to condemn the property. 

After Verizon obtained CPUC approval, the case moved forward to a valuation trial.  Verizon filed a motion in limined to exclude the association's valuation appraiser, Chris Pedersen, on the grounds that the association did not own a compensable interest in the property being condemned.  The trial court conducted a hearing pursuant to Evidence Code section 402, and concluded that the association could not participate in the condemnation action because it did not own any interest in real property.  The appraiser was then limited to testify as to damages suffered by the individual property owners as a result of the condemnation (to whom the appraiser allocated 100% of the damages).  After the valuation trial, the association appealed, arguing that an in limine motion was not a proper procedure to determine the association's standing to bring a claim.

Appellate Decision

While the Court of Appeal recognized a dislike for the use of in limine motions for dispositive issues, it explained there was no blanket prohibition on such use.  Here, the Court found the in limine procedure was appropriate, as there was ample evidence the association had no interest in the real property.  Moreover, there was no harm to the association:  the trial court still allowed the appraiser to testify as to damages, and he allocated 100% of the damages to the private property owners.

The association made one last attempt to assert a claim through "associational standing," which applies where an association is seeking relief which would inure to the benefit of the organization's members.  The Court also rejected this claim, concluding that associational standing is inappropriate where the harm is suffered by the organization's members and requires the participation in the individual members in the lawsuit.   

Conclusion

It's tough to glean what really took place in this litigation.  For instance, why was the association so adamant on making a claim if the individual property owners were already parties to the condemnation action and could seek 100% of the compensation?  Similarly, why did Verizon wait until just before trial to address the association's interest in the property?  And what happened with the association's effort to set aside the order for prejudgment possession?  Unfortunately, there are a number of missing pieces to this story, but the take away is that in limine motions can be used for many purposes, including addressing whether a party has a compensable interest in the property being condemned.

Time Limit to Transfer Base Year Property Tax Value Expanded for Eminent Domain Takings

Californians who have owned their properties for years understand the benefits of Proposition 13: their property taxes are based upon the property's purchase price (with only small allowable annual increases), as opposed to the property's current value.  But upon a transfer, the property gets reassessed at its current value.  Consequently, people in California often wind up with higher property taxes when they sell one property and buy another, even if the new property costs exactly what they received for the sale of the old property.

When an owner is forced to "sell" as a result of the government's power of eminent domain, this rule does not apply.  Rather, California law contains an exception which allows condemned owners to keep their Proposition 13 base year value and transfer it to a replacement property.  However, there are limitations.  

For example, California Revenue and Taxation Code section 68 provides that the property owner must file a request for the transfer of the base year value within four years after the recordation of a final order of condemnation.  So what happens if the property owner fails to file for the transfer within the four year time limit?  This question was recently answered by the Court of Appeal in Olive Lane Industrial Park v. County of San Diego (2014 Cal. App. LEXIS 632).  

Background

In Olive Lane, a property owner had its property condemned by Caltrans and was awarded just compensation of $2 million.  The owner had a base year tax value in the condemned property of $650,000.  The owner then purchased another property within the four year time limit, but failed to file its application to transfer the base year value for five and one-half years.  The County of San Diego denied the owner's application as untimely, and the trial court agreed.  

Appellate Decision

On appeal, the Court held that the Legislature has the right to impose reasonable limitations on the exercise of constitutional rights, and therefore it can impose time restrictions on a property owner's ability to transfer their base year tax value of property taken by eminent domain.  However, in interpreting the legislation, the Court held that while the four year time limit applies to a property's owner seeking a retroactive application of the base year value transfer, it is silent as to an owner's application to transfer the base year value going forward in future years.  In other words, the legislation allows the

"application of the eminent domain replacement property exclusion in a prospective manner when a taxpayer acquires the property within the four-year period but misses the four-year filing deadline."

The Court explained that its holding was "a narrow one, premised on the just compensation eminent domain principles . . . ."  

Conclusion

The case serves as an important reminder for property owners seeking to acquire replacement property after their property is acquired by eminent domain:  the replacement property must be acquired within four years of the recordation of the final order of condemnation if the owner seeks to transfer its base year tax value.  If the owner wants the base year value applied retroactively, the application must be filed within four years as well.  However, according to Olive Lane, the owner will not lose the right to transfer the base year value prospectively if it misses the four year filing window.  

Fremont Latest California City Seeking to Reinvent its Downtown

Undaunted by the so-called "death of redevelopment," several California cities have pushed to reinvent -- a.k.a. redevelop -- their downtown cores.  And it appears to be working.

The San Jose Mercury News recently reported that the city of Fremont is breaking ground soon on its extension to Capitol Avenue, creating a new "Main Street" for its Downtown District.  And Fremont is not alone.  Stockton also has a plan to "Bring Downtown Back."  In Southern California, The Desert Sun reports that Palm Springs is moving forward with its downtown redevelopment.

So perhaps redevelopment didn't die after all, but it does look different.  There are no redevelopment agencies to acquire the property necessary, but cities like Fremont can work with developers, and use their powers of eminent domain where necessary for related improvements, such as the extension of Capitol Avenue.   And, as my colleague Brad Kuhn reported earlier this year, we may see cities using Infrastructure Financing Districts to get larger projects rolling.

Is there a trend away from "big box" shopping centers to walkable urban centers?  It looks like there very well may be.  And how will cities make this happen?  Stay tuned...

Optimistic that the Willits Bypass will move forward, Caltrans seeks input on its "child projects"

As reported in the Willits News, Caltrans is going forward with public workshops for the Sherwood Road Intersection Project, one of four "child projects" of the Willits Bypass project, which is anticipated to increase the traffic on Sherwood Road.

But Willits residents won't be seeing improvements any time soon, because construction is dependent on the opening of the Willits bypass, a segment of US 101 through Mendocino County that has been in the works since the 1950's.  And construction of the bypass is currently suspended while Caltrans and the Army Corps of Engineers work through issues relating to the Willits Bypass Mitigation Project.  You can view Caltrans' letter to the Corps here.  This is just the latest of the environmental-related challenges facing the project.

Like all agencies, Caltrans must be prepared for the challenge of constructing public works through environmentally sensitive areas.   According to Caltrans, it is prepared, touting the Willits Bypass as an example of how Caltrans is applying contemporary and world-class engineering practices for a "sustainable approach" to highway construction.  You can read about Caltrans' sustainability commitment here.

Oxnard Union High School District to Acquire Nearby Church Property

The Oxnard Union High School District began Eminent Domain procedures to acquire property owned by the Church of Jesus Christ of Latter-day Saints. The property is required for construction of a right-turn lane for the new Rancho Campana High School, scheduled to open in time for the 2015-2016 school year. According to reports, the City of Oxnard set a deadline of June 30, 2014 for the district to acquire the property or begin the eminent domain process. Although the parties are currently engaged in negotiations, the district initiated eminent domain procedures in order to meet the city’s deadline. On June 25, 2014, the school board voted 5-0, adopting a resolution of necessity. Representatives at the district are hopeful that a purchase of the property will be completed in the next few weeks.

A church is typically considered a “special use” or “special purpose” property because, due to its uniqueness, there is usually no relevant market of comparable sales for purposes of valuation. Where there is no relevant, comparable market for a property, Evidence Code section 823 and Code of Civil Procedure section 1263.320 allow the use of “any method of valuation which is just and equitable.” One method the Church could use to value its property is to appraise the land alone, according to market data, combined with an appraisal of the improvements on the basis of reconstruction cost. (See City of Pleasant Hill v. First Baptist Church (1969) 1 Cal.App.3d 384, 396-397.)
 

CTC Meeting Brings Good News for Transportation Projects Around the State

As reported in Caltrans District 11's press release, there is much good news coming out of California Transportation Commission's meeting last week.  First, thanks to a new state budget that increased transportation funding by $351 million, CTC revised its budget for SHOPP projects to $2.4 billion.

Local projects also received good news with CTC's award of $510 Million to 83 transportation projects around the state.  As reported by Progressive Railroading, several rail projects received significant funding, which will hopefully allow those projects to proceed to construction in short order.  Many other projects focused on rehabilitating the roadways and upgrading existing facilities. 

Some projects receiving awards include:

  • $71 Million to the Alameda Corridor-East Construction Authority for its Fairway Grade Separation project
  • $6.8 Million for the US 50 / Folsom Blvd. bypass in Sacramento County
  • $49 Million for additional HOV lanes in Orange County
  • $12.2 Million for the Tehachapi Trade Corridor Rail Improvement Project
  • $5.7 Million for Navy Drive/BNSF underpass in Stockton
  • $9 Million for various biking and pedestrian projects

Property Reserve on Hold: Supreme Court to Review Eminent Domain Right of Entry Statutes

Just a few months ago, the California Court of Appeal handed down a significant decision in Property Reserve v. Superior Court which nearly eviscerated public agencies' ability to make use of the statutory "right of entry" procedure to gain access to private property to conduct any significant investigations and testing.  The Court held that any notable physical intrusion onto private property constituted a taking, meaning the public agency needed to proceed with an eminent domain proceeding.  The decision caused an uproar among public agencies across the state.  Well, pump the brakes:  the California Supreme Court just decided to review the case.  

The Court will decide the following issues:

  1. Do the geological testing activities proposed by the public agency (in this case, the Department of Water Resources) constitute a taking?
  2. Do the environmental testing activities (soil borings, endangered species testing, etc.) constitute a taking?
  3. If so, do the precondemnation entry statutes (Code Civ. Proc., §§ 1245.010-1245.060) provide a constitutionally valid eminent domain proceeding for the taking?

What does this all mean?  Well, for now, the Property Reserve case is no longer the law (meaning it cannot be cited as precedent for the time being).  Once the Supreme Court issues its decision, we'll know a lot more about what public agencies can and cannot do with respect to pre condemnation investigation and testing.  Perhaps the Court will side with public agencies, concluding that such actions do not rise to the level of a taking, or that the right of entry statute afford sufficient protections when agencies undertake investigation and testing.  Or, perhaps the Court will side with property owners, concluding that any invasion onto private property must afford owners with the necessary protections of just compensation and the right to a jury trial.  Or maybe we'll get some more bright lines on just what will and what will not be allowed.  

For the time being, agencies arguably can go back to business as usual, using the right of entry statutes for early testing and investigation.  But it's still risky business:  any sophisticated property owner is still going to make the same arguments the owners made in the Property Reserve case, or at least argue that any trial court cannot allow for such activities until the Supreme Court issues its decision.  

Stay tuned.

Contamination, Underwater Mortgages, and the IRWA Annual Education Conference

Along with my colleagues Brad Kuhn, Ben Rubin, and Katherine Contreras, I'm here in Hartford at the IRWA Annual Education Conference.  It's been an interesting few days as we discuss eminent domain issues in the shadow of New London, Connecticut, battle ground of the infamous Kelo decision.  

I spoke yesterday on a panel moderated by Orell Anderson, alongside attorneys Jim Ray and Jeff Pollack.  Our topic involved how contamination issues are handled in litigation.  It was a great session, even though it did not go at all as we planned it.  The extremely engaged audience consumed nearly the entire two hours with thought-provoking questions, meaning we only got through about four of our scripted "questions" that Orell planned to ask us.  

Still, the dynamic, international audience made for a fun session, and I'm pretty sure I learned as much as anyone as we went through the discussion.  (I mean, who knew that in Mexico, when an oil pipeline in an easement leaks, the underlying landowner bears the responsibility for it.)  

Tomorrow, I'm leading a session on the condemnation of underwater mortgages.  It turns out that while the failed effort in Richmond, California definitely had a chilling effect, there are still jurisdictions pursuing a plan to condemn underwater mortgages, especially here on the East Coast.  (Note that Hartford itself has the highest rate of underwater mortgages in the country, at around 55%.)  

I'm hoping tomorrow's audience is as engaged as yesterday's, and Kevin Donahue and I can lead another spirited discussion -- the likes of which can only happen with the type of audience that the IRWA Annual Conference generates.  More after the session.

Hello from Connecticut: 9 Year Anniversary of Kelo Decision

This week marks the nine-year anniversary of the Kelo v. City of New London decision.  Since I've been practicing as an eminent domain attorney, Kelo is unquestionably the most well-known and stirring court opinion, creating widespread reform to the use of eminent domain across the country -- even on the opposite coast in California.  Last time I checked, about 45 states had passed some sort of eminent domain reform in response to the Kelo decision.

If you're interested in learning more about the Kelo decision, stay tuned for the film Little Pink House, which is being produced in cooperation with the Institute for Justice.  The movie is expected to start production early next year.  You can find out more about the film on our colleagues' blogs, such as Robert Thomas' inversecondemnation.com and Ilya Somin's volokhconspiracy.com.  

The Kelo anniversary also has a bit of a unique meaning to me as I write this post from Hartford, Connecticut, just a short drive from the prior site of Ms. Kelo's pink house in New London.  I am here representing our local Riverside/San Bernardino Chapter at the International Right of Way Association's (IRWA) annual conference.  Having thousands of right-of-way professionals gather once a year to share industry and educational information is invaluable.  But having the conference so close to the situs of the famous Kelo case gives it a unique meaning, and hopefully reminds everyone that what we do is powerful:  the government's taking of property must be exercised delicately, fairly, and judiciously.  

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