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California Eminent Domain Report

"…nor shall private property be taken for public use, without just compensation."

Join Us at Nossaman’s 2015 Eminent Domain Seminar: “Taking Your Project from Concept Through Construction”

Posted in Events

On March 5, Nossaman’s eminent domain attorneys are hosting a complimentary seminar, “Taking Your Project from Concept Through Construction.”  We have some great topics and an exciting group of experts joining us to cover topics such as implementing best practices for design-build projects during right-of-way acquisition, preparing for CEQA challenges at the condemnation stage, acquiring contaminated properties, and addressing business goodwill claims.  We will also provide a recap of the most important eminent domain court decisions and legislation from 2014.  Attendees will have the chance to participate in Q&A sessions with each panel as well as network with colleagues during an evening cocktail reception.

This complimentary seminar is a must-attend event for public agencies and agency staff, appraisers, and right-of-way consultants.  The program is currently being considered for SR/WA credit for right of way consultants, OREA credit for appraisers, and MCLE credit for attorneys.  You can find more information about the seminar here, and you can register here.  Like last year, the event is being held at the Center Club in Costa Mesa.  Below is a list of topics and speakers.  We hope to see you there!

11:30 a.m.  – Registration & Lunch

12:00 p.m.  – Eminent Domain: Another Path to CEQA Challenges?

  • Carol Chiodo, Los Angeles County Metropolitan Transportation Authority
  • Rob McCann, LSA Associates
  • Ben Rubin, Nossaman
  • Katrina Diaz, Nossaman

1:00 p.m. — Design-Build Projects and Right of Way Acquisition: Benefits, Challenges and Pitfalls

  • Mark Lancaster, Riverside County Transportation Commission
  • Joey Mendoza, Overland, Pacific & Cutler
  • Artin Shaverdian, Nossaman
  • Katherine Contreras, Nossaman

2:30 p.m. — Public Projects and Business Losses: Who Gets What and When?

  • Aaron Amster, Desmond, Marcello & Amster
  • Dave Girbovan, Girbovan, Inc.
  • David Graeler, Nossaman
  • Brad Kuhn, Nossaman

3:45 p.m. — Valuation, Cleanup Costs, & Other Scary Things: Acquiring Contaminated Property

  • Mohammed Estiri, Eco & Associates, Inc.
  • Orell Anderson, Strategic Property Analytics, Inc.
  • Rick Rayl, Nossaman
  • Michael Thornton, Nossaman

 4:45 p.m. — 2014 Eminent Domain Recap: Looking Back to the Future

5:15 p.m. — Reception

Nossaman’s Eminent Domain Practice Group Attending the Transportation Research Board’s 94th Annual Meeting In Washington D.C.

Posted in Events

The Transportation Research Board’s 94th Annual Meeting is well under way in Washington D.C. (January 11-15, 2015).  The meeting, which has attracted over 12,000 attendees and 300 exhibitors this year, provides an opportunity for transportation professionals to share knowledge and perspectives with colleagues and to learn about the latest developments in transportation research, policy, and practice.  More than 5,000 presentations and almost 750 sessions and workshops address topics of interest to policy makers, administrators, practitioners, and researchers.  A partial list of the sessions I’ve had the opportunity to attend include:

  • “To MAP-21 and Beyond: Implementation Efforts Across the Country”;
  • “Learning from the Curve: Effective Strategies Used to Prevail in Recent FHWA and FTA NEPA Litigation”;
  • “Pathways to Automated Transit and Shared Mobility”; and
  • “Meeting Environmental Commitments in Design-Build Projects”.

I’ve also had the opportunity to attend multiple meetings of the 200-plus standing committees who assemble the TRB’s annual program and engage in cutting edge discussions with colleagues.  A partial list of the committee meetings I’ve had the pleasure of attending include:

  • Eminent Domain and Land Use Committee
  • Public-Private Partnerships Subcommittee
  • Transportation Law Committee
  • Environmental Issues in Transportation Law Committee

Looking forward to attending another day of excellent programs and workshops, and the opportunity to share thoughts and discussions with transportation professionals.

 

Keystone Pipeline May Be First Clash between President and New Congress

Posted in Uncategorized

So the new Congress has been sworn in back in Washington, and the nation gears up for the first big clash between the Republican-controlled Congress and President Obama.  What will the first major battle be:  health care; taxes; immigration?  No, the first big clash appears destined to be over the controversial Keystone XL pipeline project and the potential for over 1,000 miles of right of way subject to potential eminent domain.  As reported today by Reuters,

Republican senators kicked off the new U.S. Congress with legislation to approve the hotly disputed Keystone XL oil pipeline, but the White House promptly threatened a veto.

For those who haven’t followed the saga, the pipeline is proposed to run from Canada all the way to the Gulf Coast, and passionate proponents and opponents have made it a major fight, both politically and legally.  In terms of eminent domain, the project would involve adding 1,179 miles to an existing pipleline that already transmits oil to the Gulf Coast.   That portion of the pipeline that would traverse Nebraska has been especially controversial, as courts and the legislature have been wrangling over rules to allow (or not allow, depending on one’s perspective) the project proponent, TransCanada, to use the power of eminent domain in Nebraska.

So where do things stand?  A Nebraska landowner challenged TransCanada’s right to take his property by eminent domain, and the trial judge ruled that the Nebraska law allowing the action is unconstitutinoal.  That ruling is currently pending before Nebraska’s Supreme Court.  Congress appears ready to pass a bill approving the project as soon as this week, even as the legal process is playing itself out in Nebraska.  In part because of the pending Nebraska court case, President Obama has indicated that he would veto the bill.  At the moment, it does not appear as if Congress has enough votes in the Senate to override a veto.  (The bill is sponsored by all 54 Reppublicans and 6 Democrats, but would need 67 votes to override any veto.)

For a little more background on what makes the project controversial, a November 18, 2014, New York Times article, Keystone Pipeline Pros, Cons and Steps to a Final Decision, provides a good Q&A.

California Supreme Court Grants Review of Coastal Act Decision with Takings Implications

Posted in Court Decisions, Inverse Condemnation & Regulatory Takings

In September 2014, the Court of Appeal for the Fourth Appellate District issued a surprising decision, finding that even if an applicant maintains that it is accepting imposed permit conditions “under protest” and expressly asserts that it plans to challenge those conditions in court, it waives any such challenge by building the approved project.  (Lynch v. California Coastal Commission (2014) 229 Cal.App.4th 658.)  In reaching this conclusion, the majority found that the protest procedure provided in the Mitigation Fee Act was inapplicable because that Act does not apply to conditions that restrict the manner in which a developer may use its property.

The decision by the court was not unanimous, however, as Justice Nares authored a dissent that strongly disagreed with the majority’s analysis.  In particular, Justice Nares focused on the permit expiration condition that required the homeowners to reapply for a discretionary permit every 20 years in order to maintain a seawall necessary to protect the newly constructed home.  Justice Nares stated that this condition amounted to a taking, because it “unconstitutionally forces the homeowners to waive their rights and property interests without any nexus or ‘rough proportionality’ to potential adverse impacts caused by the seawall.”

On December 10, the California Supreme Court granted the homeowners’ petition for review, identifying the following issues:

  1. Did plaintiffs, who objected in writing and orally to certain conditions contained within a coastal development approved by defendant California Coastal Commission and who filed a petition for writ of mandate challenging those conditions, waive their right to challenge the conditions imposed by subsequently executing and recording deed restrictions recognizing the existence of the conditions and constructing the project as approved?
  2. Did the permit condition allowing plaintiffs to construct a seawall on their property, but requiring them to apply for a new permit in 20 years or to remove the seawall, violate Public Resources Code section 30235 or the federal Constitution?
  3. Were plaintiffs required to obtain a permit to reconstruct the bottom portion of a bluff-to-beach staircase that had been destroyed by a series of winter storms, or was that portion of the project exempt from permitting requirements pursuant to Public Resources Code section 30610, subdivision (g)(1)?

Because the California Supreme Court granted the petition for review, the Court of Appeal’s decision has been depublished and is no longer citable precedent.

What Do You Do When The Bank Wants Your Condemnation Award?

Posted in Uncategorized

Property owners typically have a lot on their minds when they find out that the government is going to be taking their property.  For residential owners, they need to worry about where they are going to live with their families once the agency takes possession of their home.  For business owners, they have to figure out how to run a business while planning for a forced relocation — a relocation that may be coming at a terrible time or on a terrifyingly fast schedule.

The owners must also worry about whether they are receiving the right amount of money — i.e., the “just compensation” the agency must pay them for the taking.  This comes in the form of payment for the fair market value of the property, but it can also include amounts for furniture, fixtures, and equipment and/or payments for lost business goodwill.  And where the government only needs part of the property, the owner must also learn about “severance damages” and how they are calculated.

And then there’s the final nasty surprise that some owners face, the one that is the point of this post.  Once the owner finally gets everything sorted out and reaches a deal with the condemning agency, they may find their lender standing in front of them with open hands, waiting for their part of the proceeds.  And if that weren’t enough, the bank may also hand them a bill for the bank’s attorneys’ fees incurred in the eminent domain action.

I deal with these issues every day; they do not strike me as unduly complicated or frightening.   But I’m an eminent domain lawyer, and I’ve represented clients on all of these types of issues for more than 20 years.  When I try to think like a more typcial propety owner — one who may not even really know what eminent domain is when the government first knocks on the door — I think about situations where I have been the one out of my element.  (Sitting in a doctor’s office while they try to explain what they really mean when they say “cardiac incident” quickly comes to mind.)

The first thing to know when faced with lender demands is not to panic, and not to immediately sign whatever the lender puts in front of you.  Loan documents are lengthy and complicated, and they typically contain language (that the lender will gladly point you to) that sure makes it seem like the lender really does get the condemnation proceeds, and that it can force you to pay whatever costs — including attorneys’ fees — that the lender has incurred.

But there are some legal rules that may change things, and you will want to talk with an eminent domain attorney before agreeing to give the lender anything.  The most important of these rules is that despite what the loan documents may say, the law limits what the lender can receive, particularly when the government is only taking part of the property.  Specifically, the lender’s rights depend on the taking creating an impairment of the lender’s security.  Determining what constitutes an impairment is itself a murky issue, but one in which the property owner may fare much better than the loan documents suggest.

And when it comes to attorneys’ fees, the lender may indeed have the right to force the owner to bear those costs, but again there are other issues in play.  There may be a way to structure a deal under which the condemning agency agrees to pay those lender fees.  And if that doesn’t work, the lender still must typically prove that the fees incurred were reasonable.

The bottom line is that these lender issues seem to crop up at the worst possible times, when owners are already overwhelmed with the many other issues facing them, and it is all too easy to agree to what the lender says and turn over money that need not be relinquished.   The point of this post is to suggest that owners in that situation resist the urge to capitulate, at least until they have talked with an attorney who understands these issues and can provide proper guidance.

41 Projects Get Funding at CTC December Meeting

Posted in Projects

The California Transportation Commission met in Riverside on Wednesday.  On the agenda was the allocation of $254 million in funding for transportation projects throughout the state.  You can read Caltrans’ press release here.  Caltrans Director Malcolm Dougherty commented:

Investing in our infrastructure benefits Californians for generations to come and these projects will improve mobility for all users of the transportation system, whether they choose to travel by car, take transit or ride a bicycle.

Just under half of the money allocated came from Prop 1B funds.  Voters approved the bond in 2006 and it continues as an important piece in bringing California’s infrastructure up to speed.  Most of the Prop 1B funds - $108 million – went to rail service for the purchase of locomotives and rail cars.  This is a welcome development, especially for those of us who use the commuter rail services, such as Metrolink.  And with more millennials joining the workforce, it seems likely that demand for mass-transit will continue to increase.  (For more on millennials and transit, see APTA’s article “Millennials & Mobility: Understanding the Millennial Mindset.”)

Millennials are not the only ones who will benefit from the CTC’s allocation.  Many of us will benefit from the projects receiving money this month.  Some highlights include:

  • $6.5 million for improvements to SR 1 in Malibu
  • $7.7 million for surface improvements to SR 12 in San Joaquin County
  • $2 million for regional transit operation facilities in Butte County
  • A full list of projects receiving funding can be found here.

The CTC also approved $64.7 million for the beleaguered Willits Bypass project.  That project has been beset by environmental issues and protests that have taken their toll on the budget and project timing.  Just a few months ago, I thought the project was moving forward (see my blog post here) but it appears the controversial project has more hurdles to overcome.

Another item on the CTC agenda was the appointment of a committee to study the Road Usage Charge alternative to the gas tax.  The California Legislature enacted SB 1077 authorizing a pilot program for the study.  Whether the Road Usage Tax will become a reality remains to be seen.  As Dan Weikel of the LA Times reports in his article “Tracking miles as gas tax alternative raises fairness, privacy concerns“, not everyone is in favor of the government tracking people’s travel.  But the reality is that as people give up their gas-guzzlers in favor of more eco-friendly cars and mass transit (again, think millennials), a major source of transportation revenue will continue to decline.  Is the Road Usage Tax the best replacement?  Maybe, maybe not.  That is probably a subject for another blog post.   Perhaps the CTC’s newly appointed committee will help decide the question.

 

Don’t Like Your Utility Rates? Then Condemn The Provider….

Posted in Projects

There has been a remarkable movement lately throughout California:  local government agencies are attempting to take over investor-owned, quasi-public utility companies in an effort to reduce utility bills to their constituents.  A number of electric and water utilities are facing pressure from agencies to sell their assets – or face having them acquired through eminent domain.  Does this make sense?

As just one example, according to one recent article by Garth Stapley in the Modesto Bee, SSJID can boot PG&E from Ripon, Escalon, Manteca, the South San Joaquin Irrigation District has approved the acquisition of PG&E’s assets in order to control the delivery of power to about 110,000 residents.  The District believes it can lower electric bills by 15%.  PG&E called such savings a ”pie-in-the-sky projection,” instead predicting that rates would rise.  The take-over decision came after 11 hours of testimony among various attorneys, engineers, and other experts, and even District staff only calculated the savings at 2.5%.

A big factor in the ultimate savings calculation will be the determination of how much the District must pay for PG&E’s assets through a forced acquisition.  That will be for a jury to determine.  Is the District, in its savings calculations, undervaluing the business assets?  The valuation is more than just PG&E’s physical improvements, equipment, etc.  The biggest component of the compensation in an eminent domain action may turn out to be PG&E’s business goodwill.  (See Code Civ. Proc., sec. 1263.510.)  These are the intangible assets — the likely projected future revenues and profits that can be derived through PG&E’s delivery of utility service.  PG&E’s initial valuation is apparently $600 million.  The ultimate determination of just compensation is based upon the “highest price” that a willing buyer would pay for the business.  And that valuation figure is money the District will need to pay now.

These takeovers will be interesting to follow, and years from now we can look back and see whether the take-over was worth the fight and the ultimate cost.  Stay tuned.

This Proposed Rulemaking Should be Mandatory Reading for All Public Transportation Agencies

Posted in New Legislation

On November 24, 2014, the Federal Highway Administration (FHWA) published a proposed rule that would amend the regulations governing how Federal grant recipients acquire, manage, and dispose of real property.  Thus, the proposed rule, if it becomes final, has the potential to impact the daily operations of transportation agencies all across the United States.  Some of the more notable proposed revisions include:

  • Broader authority for public agencies to proceed with construction contract bidding when the agency has not acquired all real property interests needed for the project;
  • Three alternative methods for agencies other than State departments of transportation to establish approved right-of-way procedures;
  • Clarifications regarding how the approved right-of-way manual is to be used, and the topics that it must cover;
  • Simplifying the certification requirements for right-of-way activities related to design-build projects;
  • Clarifying that a design-build contractor may begin construction before all acquisition and relocation activities have been completed so long as the construction activities “do not have a material adverse impact on the quality of life of those in occupied properties that have been or will be acquired”;
  • Broadening the ability for agencies to undertake early acquisitions and to seek reimbursement; and
  • Simplifying the land transfer procedures that apply when land owned by a Federal agency is needed for a project.

The FHWA’s stated intent behind the proposed rulemaking is to provide public agencies with greater flexibility to complete transportation projects, consistent with the mandate in MAP-21.

Condemnation and Contamination: The Spectre of Double Liability

Posted in Court Decisions

Agencies acquiring private property for a public project conduct thorough investigations to determine whether the property has environmental contamination.  If contamination is found, the question arises whether evidence of the contamination will be admissible in the eminent domain proceeding.  In California the answer is yes, based on a single case that involved evidence of remediation costs introduced by both sides without objection.  In Redevelopment Agency of Pomona v. Thrifty Oil Company, 4 Cal.App.4th 469 (1992), the Agency sought to condemn a parcel owned by Thrifty that was used as a no-frills gas station.  The property had soil contamination from gas spills.  Prior to the trial, the Agency cleaned up the site at a cost of $182,000.  At trial, there was no objection to the introduction of evidence regarding the contamination on the property or remediation costs.  The Agency’s expert found the property had a value of $165,000, but deducted the remediation cost of $182,000 and concluded the property had only a “minimal value” of $5,000.  Thrifty’s expert concluded the property was worth $1 million and deducted $50,000 for the estimated cost to remediate the site.  For unknown reasons, the court also appointed an appraiser who valued the property at $225,000 and deducted from that $100,000 as reasonable remediation costs.  The jury decided the fair market value of the property was $136,200 and that was upheld on appeal.  The opinion has surprisingly little discussion of the contamination issues except in footnote 9, which states in part:

“Nor are we persuaded by the contention that the remediation issue was not properly before the jury.  The contamination of the property was used by all experts in determining the fair market value of the property.  . . .  As a characteristic of the property which would affect its value, the remediation issue was properly before the trier of fact.”

The approach used by California is considered the majority approach on this issue.  While this approach has the virtue of simplicity, it also raises the spectre of double liability for owners.  In the eminent domain action, the owner faces the prospect of having remediation costs deducted from the award and receiving reduced compensation.  The owner also faces potential remediation liability in a later environmental action.  Thus, the owner could be forced to pay twice for a cleanup:  once in the form of reduced compensation in the eminent domain action and once again in a later environmental action.  In addition, the amount deducted from the award as remediation costs may not be an “incurred cleanup cost” under environmental laws and so it may not be recoverable in a later environmental action against the responsible party.

To alleviate the threat of double liability for owners, two other approaches to valuing contaminated properties have been adopted by some other State courts.  Some courts, including Illinois, Connecticut, and Iowa, adopt the view that environmental contamination evidence is not admissible.  One of the key arguments in favor of this approach is that it eliminates the potential for double liability that arises because of the inability to fully litigate environmental claims in an eminent domain action.  Other courts, including Minnesota, New Jersey, and New York, have adopted a rule that holds evidence of cleanup costs are inadmissible and that the property should be valued as if it had been “remediated.”  Under this approach, the property is assumed to have been contaminated but is now cleaned up to applicable regulatory standards.  This means that stigma from the prior contamination can still be taken into account in valuing the property.  Some of these courts also require that a portion of the condemnation award be held in escrow pending the determination of ultimate environmental liability.  This approach greatly reduces the potential of double liability.

California courts have never grappled with the potential for double liability in these cases.  Nevertheless, the California approach is consistent with the standard for fair market value because the contamination is a characteristic of the property that would affect its value in the market.  Ultimately, the jury makes the final determination of value and factors in the potential remediation costs.  The other approaches, while reducing the potential for an owner’s double liability, could end up leaving agencies paying full value for contaminated property with little prospect of recovering remediation costs from the responsible parties.  Nossaman has experienced eminent domain attorneys who can help agencies and landowners deal with the issues raised by contaminated properties.

The Unintended Effects of Protecting the Environment – How Banning Fracking Can Lead San Benito County To Bankruptcy

Posted in Inverse Condemnation & Regulatory Takings

On November 4, 2014, San Benito County voters went to the poles to vote on Measure J, the measure designed to prohibit hydraulic fracturing, known as fracking, and related gas and oil extraction activities, as well as other “high-intensity petroleum operations,” including acid well stimulation and cyclic steam injection. The measure also banned any new gas or oil drilling activity – even conventional, low-intensity activity – in areas the county zoned for residential or rural land use.

With 59% of the vote, supporters approved Measure J in an effort to protect the local environment and the water supply from threats of fracking.  Not long thereafter, that seeming victory invited a $1.2 billion claim from Citadel Exploration, a local exploration company hoping to extract millions of barrels of oil from South San Benito County fields.  Citadel’s claim, a copy of which can be accessed here, is likely a precursor to the filing of an inverse condemnation action.  The company claims it could have extracted 20-40 million barrels of oil over the life of its project and that the County’s ban constitutes a “regulatory taking”.

While property can be regulated to a certain extent, if a regulation goes too far, it will be recognized as a taking.  There is no precise rule as to when property has been taken by government regulatory action.  In First English Evangelical Lutheran Church of Glendale v. Los Angeles County, 482 U.S. 304 (1987), the court confirmed the two-part rule that a regulatory taking occurs when (1) a regulation does not substantially advance legitimate state interests, or (2) denies an owner substantially all economically viable use of the owner’s land. In determining whether any viable uses for a property remain after an ordinance, regulation, moratorium, and so on, the courts will review the totality of the property interest and not only one isolated interest.   The Supreme Court has long held that where a regulation works an economic detriment on property owners and interferes with their “distinct investment-backed expectations,” the property owners must receive just compensation. Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978).  The Supreme Court has also unequivocally held that where a government action deprives a landowner of “all economically beneficial use of property,” the action constitutes a per se regulatory taking. Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).

Successfully asserting that a government regulatory action resulted in a taking of property in a manner that requires the government to compensate the owner under the federal or state Constitution can be a very difficult task. The nature of what must be proven to constitute a taking and the procedural steps that must be followed, including the requirement that the owner exhaust the applicable administrative remedies, create severe legal impediments to successfully mounting a regulatory takings case.  Nevertheless, the voters’ approval of Measure J has raised serious constitutional concerns – concerns that may push the County to bankruptcy if a court were to find that the fracking ban amounts to a regulatory taking requiring the payment of just compensation.