California Eminent Domain Report : a blog following condemnation, inverse condemnation, and regulatory takings written by attorneys with Nossaman LLP.

The California Transportation Commission (CTC) recently announced the award of $878 million to fund 114 transportation projects.  Brian Kelly, the acting Secretary of Business, Transportation & Housing Agency, stated:

This billion-dollar investment helps preserve California’s great infrastructure of the past and put thousands of Californian’s to work building something new.  These investments in preservation and innovation are absolutely critical to California’s economy:  In 2010, traffic congestion caused 95 million hours of delay, wasting fuel and squandering productive, economic activity.

Highlights of the funding allocations include:

• City of Riverside/Riverside County Transportation Commission (RCTC) – construction of a four lane grade separation for railroad lines at Riverside Avenue ($12.1 million – Prop 1B/TCIF funds).
• City of Highland/San Bernardino Associated Governments (SANBAG) – construction of a new bridge across the Santa Ana River, and re-alignment of half-a-mile of Greenspot Road with bike lanes and turn lanes ($1 million – Prop 1B/local funds).
• City of Moreno Valley/Riverside County Transportation Commission (RCTC) – construction of a third lane widening in Moreno Valley from Interstate 215 near Veterans Way ($560,000 – Prop 1B/local funds).
• City of Montclair/San Bernardino Associated Governments (SANBAG) –
  widening of Monte Vista Avenue in Montclair, including utility relocations and sidewalk, curb and gutter installation ($180,000 – Prop 1B/local funds).
• City of Palm Desert/Riverside County Transportation Commission (RCTC) –
  modify the I-10/Monterey Avenue interchange ramp in Palm Desert ($2.8 million – Prop 1B/local funds).

You can find a list of all the projects receiving funding allocations here.  

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The City of Imperial has taken the first step in pursuing an eminent domain proceeding by adopting a resolution of necessity to acquire a vacant property for its Transit Center Project.  As reported by the Imperial Valley Press, the City and the property owner have been negotiating the City's purchase of the property but have reached an impasse.  

While the owner concedes the project is needed in the city, he believes his property is "very valuable" and that other locations would be better suited for the Project.  The City disagreed and is moving forward with acquiring the property through eminent domain.  The City has been working with the Imperial County Transportation Commission on the Project for some time and has secured the Project's $1.2 million price tag in state and federal funding.

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An eminent decision out of the Ninth Circuit United States Court of Appeals is not a common occurrence.  A Ninth Circuit eminent domain decision dealing with intangible property is even less common.  Yet, on April 26, 2013, the Ninth Circuit took it even one step further, issuing an eminent domain decision dealing with intangible property in which the condemning authority is an Indian Tribe.

Having explained just how rare it is to see this type of decision, I now need to make a confession.  While the Ninth Circuit decision arises out of an eminent domain action in which an Indian Tribe is condemning intangible property, the decision itself is actually about exhaustion.  I know, big let down.  Specifically, the Ninth Circuit addressed whether a non-Indian must exhaust tribal court remedies before proceeding in federal court.  In this case, the Ninth Circuit answered yes.  See Grand Canyon Skywalk Development v. Sa Nyu Wa, No. 12-15634 (9th Cir. 2013).

Grand Canyon Skywalk Development ("GCSD"), a Nevada corporation, and Sa Nyu Wa, a tribally chartered corporation of the Hualapai Indian Tribe, entered into a revenue sharing agreement with respect to the management and operation of The Skywalk, a glass-bottomed viewing platform suspended 70 feet over the rim of the Grand Canyon.  After a dispute arose between the parties, GCSD filed a complaint in Hualapai Tribal Court to compel arbitration.  While Sa Nyu Wa eventually agreed to participate in the arbitration, shortly thereafter the Hualapai Tribal Council passed a resolution codifying their right to condemn property for public use, and a second resolution authorization the acquisition of GCSD's contractual interest in the revenue sharing agreement.  

GCSD responded by filing a complaint in federal court and a request for temporary restraining order enjoining the tribal court eminent domain proceedings.  The district court denied GCSD's request and dismissed the action, holding that GCSD was required to exhaust tribal court remedies before seeking relief in federal court.  The Ninth Circuit affirmed, explaining that because the principles of comity require federal courts to generally defer to "the tribal court as the appropriate court of first impression," a party should be required to exhaust tribal court remedies except when:

(1) an assertion of tribal jurisdiction is motivated by a desire to harass or is conducted in bad faith; (2) the action is patently violative of express jurisdictional prohibitions; (3) exhaustion would be futile because of the lack of adequate opportunity to challenge the court's jurisdiction; or (4) it is plain that no federal grant provides for tribal governance of nonmembers' conduct on land covered by Montana's main rule.

The Ninth Circuit held that GCSD failed to adequately demonstrate that any of these exceptions applied, and therefore affirmed the district court's dismissal.   

Thus, it appears that the exceedingly rare takings decision, the one I built up so much in my introduction, isn't quite ripe yet.  That said, since this is the closest instance of such a decision that I can recall, can you really blame me for leading with that hook?   

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As reported earlier today by a number of news outlets (see for example this KCET article by Chris Clarke), the Bureau of Land Management ("BLM") will be issuing a Final Rule to facilitate right-of-way applications for lands with wind and solar energy development potential.  As explained in the press release issued by the BLM, in the past

"lands included in a proposed right-of-way [would] remain open to the location and entry of mining claims while the BLM" considered the application.  

However, the Final Rule, which will be published in the Federal Register, permits the BLM to temporarily segregate -- and therefore preserve lands in a pending renewable energy right-of-way application -- from mining claims.  This segregation, which could be effective for up to four years depending on certain circumstances, terminates automatically if the BLM

1. issues a decision on the right-of-way application;
2. publishes in the Federal Register a notice of termination of the segregation; or
3. fails to take any further administrative action after the end of the segregation period. 

The BLM anticipates that the application of this Final Rule will help spark the development of "environmentally responsible renewable energy on public lands." 

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We've talked in the past about just how hard it is to state a regulatory takings claim under the Supreme Court's decision in Penn Central Transportation Co. v. New York City, 438 U.S. 104.  I'd go through the test and how hard it is again, but it's complicated, a lot of work and, quite frankly, I'm a bit tired today.  So here's my lazy approach.  Read one of our earlier posts on the subject: 

• Sometimes Regulatory Takings Do Exist Under Penn Central;
• Takings Claims and the Morass that Surrounds Them; or
• Major Regulatory Takings Case Reversed by Ninth Circuit. 

The bottom line is that the courts have found myriad ways to find fault in property owners' Penn Central claims, both procedurally and substantively, with the end result being that few such claims are ever successful. 

A decision last week by the Ninth Circuit continued that trend.  In MHC Financing Ltd P'ship v. City of San Rafael, No. 07-15983 (Apr. 17, 2013), the Ninth Circuit reversed an earlier District Court ruling that a rent control ordinance involving a mobile home park qualified as a taking under Penn Central.

Now, I've already confessed that I'm feeling lazy today, so it may come as no real surprise that I'm not even going to tell you about the case.  For that, you'll again have to turn elsewhere:  The Ninth Circuit Botches Regulatory Takings Again, by Robert Thomas of the inversecondemnation.com blog.  (In my defense, Robert's write up is detailed, entertaining, and informative -- far more than I would likely achieve even if I weren't lazy).  

I should offer one disclaimer.  Robert is decidedly slanted on the property owner's side, and does not profess to offer a balanced view of things.  The title of his post may give him away in that respect.  Still, when he writes

Read that again, to make sure you got it: a transfer of $97 million is not enough [to qualify as a taking under Penn Central]. Wow. Maybe this is just Marin County, and you know, a dollar doesn't go as far here as elsewhere.

it's hard not to nod your head.  And yes, so we're clear in case you didn't click over to read Robert's post, the Court held that an ordinance which transferred over 80% of the property's value away from the owner -- to the tune of $97 million -- wasn't enough to qualify under the "economic impact" prong of the three-part Penn Central test.  

There's a lot more to the case, and if you still haven't clicked over to read Robert's summary . . . well, clearly you aren't that interested in the case. 

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Light rail and rapid transit appear to be the hot ticket in California.  Most of our right-of-way acquisition and eminent domain work over the last few years has centered on such projects.  One interesting dispute that regularly pops up between the land owner's appraiser and the public agency's appraiser is whether or not there are "project benefits".  In analyzing the property's "before-condition" value, such benefits need to be excluded (whether positive or negative).  (See Code Civ. Proc., sec. 1263.330.)  But when assessing the property's "after-condition" value in the case of a partial acquisition, such project benefits should be included and can offset severance damages.  (See Code Civ. Proc., secs. 1263.410 and 1263.430.)  So in the case of rapid transit, are there any benefits from being located near transit stations?  According to a recent study, the answer is yes.

The American Public Transportation Association, the Center for Neighborhood Technology and the National Association of Realtors recently studied the beneficial impacts of transit-oriented development by analyzing home values in San Francisco, Phoenix, Boston, Chicago, and Minneapolis-St Paul between 2006 and 2011.  What they found was that homes closer to public transit performed 42 percent better (in terms of resilience of property values) than those further away.  

Price resilience was highest for properties near transit stations with the most connections and most frequent service.   Interestingly, housing type (apartment, single-family, townhouse etc.) had no impact on the study, with the results holding true across all property types.   Residents in a “transit shed” (within a half a mile of selected transit) also had “better access to jobs and lower average transportation costs” than the study area as a whole.

The full text of the report is available on the American Public Transportation Association website, and it is probably something that can be considered by appraisers when analyzing potential project benefits.

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California's loss of business goodwill statute, Code of Civil Procedure section 1263.510, provides that before a business can submit its goodwill claim to a jury in an eminent domain case, the business must first demonstrate that:

1. The loss is caused by the taking;
2. The loss cannot be prevented by relocation or other reasonable mitigation efforts; and
3. The loss will not be covered through another form of compensation, such as relocation benefits.

In late-2012, the California Court of Appeal issued a decision in People ex rel. Dept. of Transportation (Caltrans) v. Dry Canyon Enterprises, in which the Court crafted a fourth preliminary goodwill entitlement finding for the judge: a determination of whether the business possessed any business goodwill to lose.  Apparently, the Legislature feels it is appropriate to set the Court's finding in stone, as Assemblyman Wagner recently introduced AB 374 which seeks to amend section 1263.510 to add language requiring the business to "adduce sufficient evidence to permit a jury to find that goodwill existed prior to the taking."

The question is, why?  Was the Dry Canyon opinion not clear enough?  Even stranger, as we noted when we first reported about the opinion, this was already the law -- at least in our view.  Specifically, one of the statutory requirements is that the owner prove that it has lost goodwill as a result of the project; in order to conclude that the owner lost goodwill, it would seem that the court already had to decide that goodwill existed in the first place.

Nevertheless, we'll follow AB 374, and we'll let you know if it becomes law -- in which case some new (and arguably superfluous) language will be added to California's loss of business goodwill statute.

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Recently, we came across an interesting request from an attorney for a condemnee.  The condemnee had filed a Disclaimer in the eminent domain action, stating that they had no interest in the property being condemned.  This, from our experience, is typically where things end. 

But the attorney asked that we proceed to dismiss the disclaiming party.  I had not heard of this before, and it seemed an odd request.  The attorney assured us, however, that this is common practice in that attorney's work.  More importantly, the attorney almost always represents public agencies; in other words, the attorney's statement that they do this as a matter of course when on the agency side warranted some consideration.    

We thought about it for a while, but couldn't get past one fundamental problem.  If the disclaiming party is dismissed, they will not appear in the Final Judgment and will not appear in the Final Order of Condemnation that gets recorded -- and that effects the actual transfer of title. 

To me, that is a big problem.  While we certainly do not want to burden a defendant who has filed a Disclaimer, we also want to make sure that we obtain clear title on behalf of our agency clients.  A dismissal could theoretically call that into question, especially if it turns out that the dismissed party really did have an interest in the property. 

It actually is not all that uncommon that a defendant with an actual interest disclaims.  It may be a decades-old, unused easement interest.  It really exists, but likely has little to no value and the defendant has no interest in participating in the litigation.  But at the end, the agency certainly wants its Final Order to wipe out that easement. 

The bottom line is that after discussing it internally, we concluded that a dismissal is not warranted, even where a defendant disclaims. 

Our advice in such situations:  the agency and defendant should reach an agreement to remove the defendant from the service list.  On the one hand, the defendant will have no further participation in the lawsuit, and will not be bothered by the barrage of filings that will occur, especially if the matter proceeds to trial.  On the other hand, the agency will still be able to include the disclaiming defendant in its judgment and Final Order, ensuring clean title. 

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Acquiring property for public projects typically does not occur until after the project has received environmental approval. While this is the generally accepted rule – and it makes sense for a number of reasons – must a project receive environmental clearance before an agency may begin the property acquisition process? In a recent published decision, Golden Gate Land Holdings, LLC v. East Bay Regional Park District, the California Court of Appeal answered no, and permitted an agency to proceed in reverse order: filing an eminent domain action prior to its complying with the California Environmental Quality Act ("CEQA").

Will this method work in most circumstances? Probably not; the Court's holding appears limited given the unique circumstances involved. Should public agencies adopt this strategy moving forward? Not without fully understanding the risks. Should property owners give up on challenging right-to-take in an eminent domain action when an agency fails to follow environmental laws? Not if there is a real advantage to be gained if such an opposition is successful.

Background

As part of developing the San Francisco Bay Trail Project, a 400+ mile recreational corridor intended to encircle the San Francisco and San Pablo bays, the East Bay Regional Park District sought to acquire about 7.5 acres from Golden Gate Land Holdings. The District offered $1.686 million for the property, and after no agreement could be reached, the District held a hearing to consider the adoption of a resolution of necessity to authorize eminent domain proceedings.

At the hearing, Golden Gate objected to the adoption of the resolution of necessity due to the District's failure to prepare an Environmental Impact Report ("EIR") to analyze the project and its environmental effects in compliance with CEQA. The District, over Golden Gate's objections, determined the project was exempt from CEQA pursuant to CEQA Guidelines, section 15325, which provides an exemption for transfers of property in order to preserve open space, habitat, or historical resources. The Board concluded it was sufficient to rely on a feasibility study commissioned to determine the best alignment for the Bay Trail segment.

Golden Gate's Petition

Shortly after the District's adoption of the resolution of necessity, Golden Gate filed a petition for writ of mandate and complaint for injunctive relief, asserting the District had violated CEQA and the eminent domain law. In response, the District asserted the notice of exemption under CEQA only applied to the acquisition of the property -- not the construction of the Bay Trail, and that as such there was no basis to halt the District's acquisition of the property. The District also proceeded with filing its eminent domain action.

The Trial Court's Decision

The trial court partially granted Golden Gate's petition for writ of mandate, concluding (1) the District had approved a project that included both the proposed property acquisition and the proposed trail improvements, (2) the District's resolution erroneously concluded the project was exempt from CEQA compliance, and (3) while some authority suggests CEQA review must be completed before an eminent domain case is initiated, that approach was unpersuasive in this case.

The court allowed the District to move forward with its eminent domain action, but required it to vacate the resolution's conclusion that the project is exempt from CEQA and instead prepare an EIR. The court also held that the District "must not actually acquire the property without first completing compliance with CEQA."

The Appeal

Golden Gate appealed, arguing that the entire resolution of necessity should be set aside due to the improper CEQA exemption and because the District committed a gross abuse of discretion in making its necessity/least private injury findings without first complying with CEQA.

The Court of Appeal held that the CEQA regulations provide trial courts with flexibility in tailoring a remedy to fit a specific CEQA violation, and in this case the trial court did not abuse its discretion in concluding that the equities favored allowing the District to proceed with its eminent domain action but not "actually acquire" the property until it complied with CEQA.

The Court rejected Golden Gate's argument that the environmental review process would be tainted by allowing the District to proceed with the eminent domain action. Nonetheless, the Court stated that the CEQA analysis must be considered on the merits and without regard for the pending eminent domain action or the consequences of abandoning that course of action.

Conclusion

From an environmental-compliance standpoint, the Court's decision makes sense. CEQA Guidelines section 21168.9 clearly provides discretion to the trial court to leave certain approvals in place if the court finds that the public agency violated CEQA. In other words, failure to fully comply with CEQA should not entirely halt a major public works project.

From an eminent domain-standpoint, the Court's decision raises a number of issues, at least if it is read broadly. For instance:

• In adopting a resolution of necessity, a public agency is required to find that the property is necessary for the project and that the project is designed in a manner that is compatible with the greatest public good and the least private injury. How does an agency make these findings when it still needs to conduct its environmental review and the final project has not been fully identified?
• What if the environmental review process concludes that more or less property is needed for the project; in the case of more property being needed, the agency would have to go back and get a new appraisal, make a new offer, and adopt a new resolution of necessity; and in the case of less property being needed, the agency would have to partially abandon the eminent domain action, thereby becoming exposed to an award of attorneys' fees. This does not seem like the best use of public funds.
• Under the court's analysis, the agency can commence eminent domain proceedings, but it cannot "acquire" the property until it completes its environmental review. How does this work? What if the property owner wants to sell the property to the agency – is it prohibited from doing so? What happens if the environmental review process takes years – does the eminent domain action sit on hold in the meantime? Can the agency take prejudgment possession – and if so, how does the court conduct a balancing of the hardships when the project isn't fully defined and the owner does not know what the full impacts will entail?

Many of these questions likely were not an issue in this particular case. While the case was on appeal, the District secured environmental approvals, vacated its original resolution of necessity, and adopted a substitute resolution of necessity in conformance with the certified EIR. Therefore, when the Court of Appeal addressed the adequacy of the remedy, it did so knowing that an EIR had already been certified for the project and a proper resolution adopted, and as a result the Court may not have considered all the potential ramifications of its holding.

Public agencies should not rely heavily on this decision for a "condemn then comply" approach. The CEQA Guidelines provide that "CEQA compliance should be completed prior to acquisition of a site for a public project." (CEQA Guidelines, section 15004, subd. (b)(1).) There is good reason for this; agencies should understand a project's environmental effects – and the public should have an opportunity to weigh in – prior to irretrievably committing funds to property acquisitions. Moreover, the analysis of project alternatives during the environmental review process should not be influenced by prior property acquisitions.

With that said, funding for public projects has become a complex – and highly competitive – process, in which too many agencies are seeking too much funding for too many projects. The result is that funding agencies wield considerable power, and they demand the funds be put to good use in a timely manner. Funding commitments are therefore often tied to agencies quickly "certifying" the right-of-way – meaning securing possession of the needed properties. When these timelines become unmanageable (especially under California's drawn-out prejudgment possession process), it incentivizes agencies to look for opportunities to expedite the acquisition process, which could include commencing acquisition activities prior to final environmental clearance.

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