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California Eminent Domain Report

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

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.

City of Needles may use Eminent Domain for I-40 Connector Project

Posted in Projects

According to Robin Richard’s article, “Needles May Exercise Eminent Domain to make way for Highway 95 Connector,” the City of Needles is considering adopting Resolutions of Necessity to acquire 14 parcels for its long-planned I-40 connector project.   The City will be acquiring permanent road easements and temporary construction easements of various sizes.  The impacted properties include residential, commercial and motel uses.  Some of the acquisitions are fairly small, but as my colleague Brad Kuhn recently posted, even these sliver acquisitions can have impacts to the owners.

Traffic Relief for Key Corridor

 The City is seeking to improve the connections between I-40 and Arizona 95, a heavily utilized corridor during the tourist season.  According to the City, traffic volumes increase as much as 100% due to visitor and recreational traffic.   The project will widen West Broadway, J Street, Needles Highway, North K Street and Harbor Avenue in Arizona. The project also includes improvements to several intersections.  Currently, there are no signals at any of the intersections along the corridor, which leads to traffic delays and unsafe conditions.

Why Eminent Domain?

City council members may be sensitive about filing an eminent domain action, concerned that doing so may derail negotiations.  But not necessarily.  With good communication, productive negotiations can continue.  In fact, we have successfully negotiated agreements for our agency clients even after the resolution is adopted.  It appears that is what the City of Needles is trying to do here.  The City’s staff report states that eminent domain is used as a “last resort.”  The City intends to continue negotiating with the owners, but as we see quite often, must proceed with a resolution of necessity and filing of an eminent domain action in order to secure possession of the property to meet key contractual deadlines.

Federal Court States Rationale for U.S. Take of California Land a “Sham”

Posted in Court Decisions, Right to Take

The question now is, is the court’s statement merely a bump in the road or a roadblock?  The United States filed the eminent domain action seeking to condemn certain access rights so it could increase its profitability when it sold vacant federal land in Alameda County, California.  In its complaint and declaration of taking, the United States alleged that it needed to condemn the property interest for the “continuing operations” of the Alameda Federal Center.  In support of the taking, the United States relied on the General Service Administration’s general authority.  The federal court found, however, that while the General Service Administration’s general authority did authorize certain condemnation actions, it would not support the use of eminent domain in this specific situation.  (See United States of America v. 1.41 Acres of Land (N.D. Cal. Nov. 10, 2014).)

In order to streamline the litigation, the United States moved to strike two affirmative defenses:  (1) that the taking is not authorized by Congress; and (2) that the taking is not for a valid public purpose.  In support of the motion to strike, the United States argued that Congress authorized the General Service Administration to condemn land when it will increase the profitability associated with the disposal of federal land, and that the courts have held increased profitability is a valid public purpose.

As to the first issue, the federal court found that in various disposal statutes Congress did authorize the General Service Administration to condemn land when it would result in a more profitable sale of federal land.  However, the United States did not cite that authority in its complaint and declaration of taking.  Instead of citing the disposal statutes, the United States cited the General Service Administration’s general authority.  While this authority would be adequate if the access easement was necessary for the operation of federal property, the court found that it could not reach this conclusion because there was evidence demonstrating that the condemnation was intended to benefit the vacant lot, and there was an existing access easement to service the vacant lot for so long as it was owned by the United States.

As to the second issue, after noting that increased profitability was a valid public purpose, it found that in light of  the stated basis for the condemnation (continuing operations), and the existing access easement “already owned by the United States for exactly that purpose, the supposed rationale for condemnation would appear to be a sham — or so it is alleged — and at this stage, that defensive allegation will not be stricken.”

While the deficiency appeared to be nothing more than a scriveners error, the court expressly declined to decide whether the United States could amend its declaration to correct the error.

Eminent Domain Begins for County of Sacramento Road Projects

Posted in Projects

As traffic continues to increase and roadways become more congested, California’s transportation infrastructure needs to keep up.  While there has been a concerted focus on alternative methods of transportation (such as rail, bikeways, etc.), street and highway widenings are still a major focus of local government agencies.  The County of Sacramento is no different, as it embarks on the Hazel Avenue and Fair Oaks Boulevard road widening projects.  These street improvement projects typically require right-of-way acquisition, and while the acquisitions are typically small strips of land necessary for street and sidewalk improvements, the impacts can often be significant, especially for commercially developed properties.

The County of Sacramento is experiencing just how difficult these street widenings can become.  According to Tony Bizjak’s article in the Sacramento Bee, “Eminent domain set for road projects in Fair Oaks, Carmichael,” the County has adopted resolutions of necessity to acquire parts of 34 properties along Hazel Avenue and Fair Oaks Boulevard for these projects.  The acquisitions are necessary to make room for utility relocations, sidewalks and bike lanes.  These acquisitions are on top of the 41 houses already acquired and knocked down on Hazel Avenue.  While these new part-take acquisitions will not require the demolition of any buildings, they do present the possibility of severance damages — or damages to the remaining property not being acquired.  For example, there could be a loss of parking, visual or aesthetic impacts, or circulation or access impacts.  Local businesses may also attempt to make claims due to construction-related impacts or generally business losses suffered as a result of the projects.

While street widenings — and their resulting sliver acquisitions from the front of properties — may seem uncontroversial and nominal in the sense of property valuations, they do raise a host of issues and present the possibility for much more substantial claims.  Agencies should budget accordingly when planning these projects, and local property and business owners should understand that they are entitled not just to the property value of the sliver easement being acquired, but potentially the damages caused to the remaining property.

Join Nossaman at the Self Help Counties Coalition’s 2014 Focus on the Future Conference

Posted in Events

The Self-Help Counties Coalition’s 2014 Focus on the Future Conference is just around the corner.  This year, it is taking place in Santa Clara on November 16-18.  I will be presenting on the topic “Precondemnation Planning & Early Acquisition Efforts: Best Practices to Acquire Right of Way Without Blowing Your Project’s Budget” on Tuesday, November 18 from 10:30 a.m. to 12:00 p.m.  My panel includes Bijal Patel at Santa Clara Valley Transportation Authority, Chip Willett at Dokken Engineering, Rob Caringella at Jones, Roach & Caringella, and Joey Mendoza at Overland, Pacific & Cutler.

Other Breakout Session topics include:

  • Sustainability – How VTA and LA Metro are Achieving the Triple Bottom Line
  • Statewide Rail Modernization, Including High-Speed Rail, Inner City Rail, and Cap and Trade
  • CM/GC Industry – Alternative Project Delivery
  • Redefining Mobility – Connected/Autonomous Vehicles
  • New Communications Strategies in Transportation with Social Media

If you’d like more information on the event, click here.  If you’d like to register, click here.  We hope to see you there!

There is Still No Private Right of Condemnation (Generally)

Posted in Uncategorized

Most people understand the basic concept of eminent domain: the government takes someone’s private property and pays the owner “just compensation” for the taking.  Sometimes, however, the government “takes” (or “damages”) private property without filing an eminent domain action.  These situations end up as “inverse condemnation” cases, where the property owner sues the government for compensation for the taking.

Assuming the court concludes that the government has indeed taken or damaged property, the end result in an inverse condemnation case is about the same as any other eminent domain action: the jury decides how much compensation the owner should receive.  (Admittedly, there are some unique twists and turns to inverse condemnation cases, such as the owner’s right to recover attorneys’ fees, but those differences aren’t really relevant to this story.)

So we all know generally how eminent domain and inverse condemnation work.  But what happens when the “taking” or “damaging” is by a private person, not the government?  Can the private person essentially invoke the equivalent of an eminent domain power simply by waiting to get sued and then paying compensation to the owner whose property is damaged?  The short answer to that question is “no.”  The long answer, as discussed below, is “noooooo.”

In Aspen Grove Condominium Association v. CNL Income Northstar LLC et al., an unpublished decision, the California Court of Appeal upheld an injunction, because not doing so would essentially give the private property owner the right to condemn his neighbor’s property.  The case resulted from a dispute over a 2004 water retention basin built in connection with a planned expansion of Northstar Village Ski Resort.  The very same year defendant CNL installed the retention basin, water began overflowing and seeping from the basin downhill onto plaintiff Aspen Grove’s property.  After several failed attempts to fix the problem, CNL gave up.  It told Aspen Grove that it was done trying to fix the problem.  (As a brief aside, one wonders what the “retention” basin actually did, since it obviously failed miserably at the one thing typically associated with a retention basin – actually “retaining” the water.)  In any event, Aspen Grove sued, and the trial court granted a permanent injunction against CNL, requiring it to remove the retention basin.

The appellate court upheld the injunction, agreeing with the trial court’s finding that Aspen Grove had no adequate remedy at law and that the only way to prevent further damage to Aspen Grove’s property was to have the retention basin removed.

But it was part of the court’s reasoning in upholding the injunction that brings the case to our attention.  The court explained that if it simply awarded damages to Aspen Grove without ordering the basin’s removal, it would essentially be giving CNL the right to inversely condemn Aspen Grove’s property.  In other words, if CNL were allowed to continue draining its water onto Aspen Grove’s property so long as it paid for the damage it caused, it would be little different from the remedy afforded owners when the government damages property.  But this “pay-for-the-damage” remedy works for government conduct specifically because the government possesses the power to condemn the property – a power CNL lacked.

The bottom line is that even if CNL were to offer Aspen Grove more money than the losses resulting from the flooding, it couldn’t force Aspen grove to accept that remedy.  CNL simply had no right to force an invasion of Aspen Grove’s property rights. 

In the end, an unpublished decision like this creates no new law, and this one in particular contains only passing references to eminent domain (it was largely a fairly typical nuisance case).  Even so, it serves a purpose – other than forcing the removal of CNL’s failed retention basin – because it reminds us that inverse condemnation derives from the government’s power of eminent domain, making the theory largely inapplicable to conduct by private parties.  (Now before some of you jump all over me with examples of non-governmental entities being sued successfully for inverse condemnation, realize that this is just a rule which, like so many, does have exceptions.)