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California Eminent Domain Report

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

Can Comments By a Federal Employee Result in a Taking Requiring Compensation Under the Fifth Amendment?

Posted in Court Decisions, Inverse Condemnation & Regulatory Takings, Uncategorized

It depends.  A recent decision out of the Federal Circuit tackled this very issue, and the court’s decision strongly suggests that a taking could arise under the right circumstances.  (Filler v. U.S. (Fed. Cir. Mar. 10, 2015) Case No. 2014-5117.)  As you probably already guessed by my use of the phrase “strongly suggests,” both the lower court and the Federal Circuit in this case found that the plaintiff’s challenge did not present the “right circumstances.”

After sustaining a work-related injury, an employee of the U.S. National Marine Fisheries Service visited the plaintiff to receive treatment.  Sometime after receiving treatment, this federal employee posted a number of comments to a public message board using a private account.  The federal employee, however, posted these comments from a government computer during normal working hours.  Learning of these comments, the plaintiff filed an action for common law defamation and interference with prospective business advantage, as well as a claim for inverse condemnation.

The lower court and the Federal Circuit rejected plaintiff’s claim for inverse condemnation, finding that despite the fact that the federal employee made the comments on a governmental computer during normal working hours, the federal employee was acting “for her independent purpose of conveying her personal views on the efficacy and advisability of the treatment,” and not in an official governmental capacity.  Accordingly, because there must be an authorized government action in order for there to be a compensable taking under the Fifth Amendment, the courts found that plaintiff failed to state a cognizable claim for inverse condemnation.

Notably, the lower court also found that plaintiff’s medical license did not, as a matter of law, constitute a compensable property interest for purposes of the Takings Clause.  The Federal Circuit, however, expressly declined to address this issue.

Lake Elsinore to use Eminent Domain to Expand Serenity Park

Posted in Projects

On Tuesday, the Lake Elsinore City Council adopted a Resolution of Necessity to acquire a 2+ acre property in order to expand Serenity Park.  As Michael Williams describes in his article “City hopes to take over boat launch,”  the expansion is part of the City’s plan to develop a skateboarding arena .  The City’s staff report says the City has been negotiating with the property owners for about a year, but that they have not agreed on a price for the property.  The staff recommended the city move forward with an eminent domain lawsuit.

Elsinore_Serenity_Park

It isn’t clear why the owners rejected the City’s offers, but a good bet is that they weren’t happy with the appraised value.  Although the property is currently vacant, Mr. Williams’ reports that at one time the owners sought to develop the property with a self-storage facility.   My guess is that the owner sees it as a valuable, income producing property, while the City looks at it as a piece of vacant land not suitable for much.  In other words, this may come down to a fight about the property’s “highest and best use.”

Long-Awaited Montebello Grade Crossings Moving Forward

Posted in Articles, Projects

As this article by OCTA explains, the Southern California region is growing both in terms of population and in the volume of goods moving through the region via both road and rail.  I am sure many of us are familiar with the impacts this has on our daily lives — like being stuck for what feels like hours at a train crossing.  But several local agencies are doing what they can to ease our pain.  In Orange County, OCTA is in the midst of its OC Bridges program building grade separations.  And in Los Angeles, the Alameda Corridor-East Construction Authority (ACE) has completed several new crossings, with many more in construction and design.   (Go to theaceproject.org to see the project map.)  The latest ACE projects to hit the news are the grade crossings in Montebello.

Nancy Martinez reports in her EGP news article “Montebello Council Approves Plan to Build Rail Crossings” that many in the Montebello community are glad the 15-year wait is (more or less) over.  After much debate, the City recently approved plans for underpasses at Maple Avenue and Montebello Blvd.  But not everyone is happy.  It looks like the projects will require several properties including several homes and at least two businesses along Maple Avenue.   (You can see the presentation to the City Council here.)   The City’s approved plans now go on to ACE, who must approve them and will actually undertake the work — the last of ACE’s projects before the agency shuts down.

Grade separations are complicated, time consuming and expensive.  They can also be very disruptive to the surrounding community.  But the upside is a much safer and more efficient way to move goods and people through the region.

 

A Victory (at Least for Now) for Opponents of the Keystone Pipeline

Posted in New Legislation, Projects

We’ve been following the saga of the Keystone XL pipeline for a while now, and the battle rages on in Washington.  Yesterday, the Republican-led Senate attempted to override President Obama’s veto of a bill to approve the pipeline.  For those a bit lost in all the political and legal wrangling, the recent story began with a bill in Congress designed to grant approval to the controversial pipeline project.  The bill passed the Senate on January 29 and the House in mid-February and was sent to the White House for President Obama’s signature.

keystone-oil-pipelineBut just as promised, President Obama vetoed the bill, which would ordinarily be the end of things.  (A veto override is exceedingly rare; it’s apparently only happened 110 times out of more than 2,500 vetoes dating all the way back to George Washington.  And, yes, I’m citing to Wikipedia for these stats.)  But with the Republicans in control in both the House and the Senate, and with a least a handful of Democrats having voted in favor of the bill, the Senate sought to override the veto.  If successful, a veto override would have done just that, override the veto, allowing the bill to become a law.  (Is anyone else hearing the “I’m just a bill . . . ” song in the background about now?  But I digress.)

On Wednesday, the Senate voted 62-37 to override the veto.  That sounds pretty good, right?  But a veto override vote requires 67 votes, meaning the override effort fell short.

So what happens now?  It depends on who you ask, and several plans remain in the works.  Senator John Hoeven of North Dakota, a strong supporter of the pipeline, vows to fight on.  He is quoted in a March 4 New York Times article as saying:

Another option is to attach this legislation to other energy, infrastructure or appropriations legislation that the president won’t want to veto. The will of the American people and Congress is clear.

And that other bill is rumored to be a highway infrastructure bill (which, presumably, President Obama wants).  Others, not surprisingly, have different views of the subject.  California Senator Barbara Boxer was quoted as saying last week that the very idea of a veto override attempt was a “ludicrous idea,” while at the same time rejecting the idea that the bill could be revived by attaching it to the highway legislation.  According to a March 4 Fox News story, Senator Boxer did not mince words as she summed up her view:

“First, they hold the homeland security funding bill hostage to immigration,” Boxer said. “Now they want to hold the highway bill hostage to big polluting Canadian special interests.”

Suffice it to say that we likely have not heard the end of this battle.

How Does Contamination Impact “Fair Market Value”?

Posted in Articles, Valuation

46-box-stationAs California continues to expand and improve its infrastructure, public agencies are more frequently running into contaminated property.  A frequent question for eminent domain attorneys is:  “how does contamination impact ‘fair market value’ in a condemnation action?”  My general advice is that the contamination should be treated just as it would in an open market transaction.  But how is contamination handled in a typical transaction — and how does it impact value?  Aside from potential clean-up costs, are there lending issues, and is there a general stigma with contaminated property?

Luckily, my colleagues will be covering some of these issues in great detail tomorrow at Nossaman’s 2015 Eminent Domain Seminar.  Nossaman eminent domain attorneys Rick Rayl and Michael Thornton, along with appraiser Orell Anderson and environmental/contamination expert Opjit Ghuman will be presenting on “Valuation, Cleanup Costs, & Other Scary Things:  Acquiring Contaminated Property,” so we’ll learn quite a bit more from them (hopefully!).

But as a preview, and if you’re not attending tomorrow’s seminar, I came across a great study prepared by Retail Petroleum Consultants (RPC), “‘Clean’ Versus Contaminated Gas Stations:  How Do Market Buyers and Lenders Address Contamination?”  RPC has been involved in appraising thousands of gas stations, so they know what they’re talking about.    According to RPC, many gas station properties involve an indemnity from the major gas station company that previously owned or operated the site.  RPC concluded that where these indemnities exist, purchase prices usually are not discounted:

Surveyed buyers of gas stations for continued gas station use do not support a discount for contamination or stigma, unless the responsible party is not a Major Oil Company or the ongoing remediation somehow increases their cost of capital or impairs the utility of the site. In summary it seems as long as there is an indemnity agreement as is the case with most contaminated gas stations and the Major Oil Company is the responsible party, the market does not support a material discount for contaminated gas stations.

What about securing loans from lending institutions?  RPC interviewed a number of lenders, and here was the conclusion:

The responses varied amongst the lenders surveyed, though it was apparent that none could identify a particular increase in the interest rate due to contamination (or stigma). More so, the contamination issue was dealt with on case by case basis with nominal effect on lending rates as long as the site has been remediated or is being remediated by credit rated responsible party such as a Major Oil Companies.

Gas station properties may be unique or different than other contaminated properties, especially because the indemnities tend to exist with the major oil companies.  However, gas stations are the properties condemning agencies run into most frequently with contamination issues, so this is useful input.  To get some more insight, take a look at RPC’s article, attend our seminar tomorrow, or feel free to give us a call.

How Hard Does it Have to Rain Before the Government is Liable for a “Condemnation Cloud?”

Posted in Articles

stormcloud

Public projects take years of planning and environmental review usually involving outreach to neighboring property owners and other stakeholders. During this process, potential right of way impacts are identified and property owners (and their potential buyers or tenants) become aware of the planned project. As we have described in the past, this can result in a “cloud of condemnation” over the property, affecting the value of that property. Property owners often feel they should be compensated for this uncertainty. But it is difficult for owners to succeed on these claims. (Check out a 2011 post from my colleague Brad Kuhn, “Property and Business Owners’ Precondemnation Damages Claims Dismissed.”)

There are good public policy reasons why precondemnation claims should be difficult to prove. If the government were liable every time it announced it might need a property for a public project, the costs of acquiring right of way would sky rocket, or an agency might be less forthright about its plans, neither of which are in the public interest. Most people would agree that public participation and transparency in government are vital to the democratic process. Government should be encouraged to give more, not less, information about its plans.

So how heavy must the cloud get before it rains compensation for a property owner? 

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California courts have generally made the distinction between the “planning stage” of a project, and the “acquisition phase.” (See Contra Costa Water Dist. v. Vaquero Farms, Inc. (1997) 58 Cal.App.4th 883, 900.) When I think of the “acquisition phase” I think of a notice of intent to appraise, followed by an appraisal and offer and negotiations. But several California courts have found these activities to be protected. And perhaps this makes sense – I have known agencies to redesign a project or even abandon an acquisition when negotiations break down or the impacts are too great. There is an argument that agencies should be free to do so without their own cloud of liability over their heads.

On the other hand, these rules may frustrate some property owners (and their attorneys) by blurring the line between “planning” and “acquisition” that allegedly determines liability. The courts have also found other ways of to define the line. In general, an owner must show there has been some special, direct interference targeted at his or her property, beyond the general pre-acquisition activities in the general area.

Test Yourself: Impermissible Targeting or Permissible General Planning?

To see how well you’re paying attention I’m offering this little quiz (or as we former teachers call it – “check for understanding.”) Answers are in the box below.

Case No. 1: Agency has property and business appraised, signs erected in area announcing development and Agency representatives informally told owner property would be acquired.

Case No. 2: Agency enacts zoning regulations designed to depress the market value of a property to be condemned.

Case No. 3: Agency adopted a resolution of necessity and filed an action, then adopted a second resolution to dismiss the proceedings. The second resolution also declared that the Agency had a firm intention of acquiring the property at a later time.

Case No. 4: Agency adopted an environmental report showing owner’s property as part of project. For the next 7 years, agency acquired neighboring property, obtained additional necessary permits, and refined the project’s design before it filing an action to acquire the owner’s property.

Did you get them right? Congratulations! You are a precondemnation damages expert. But don’t worry if you didn’t get them right, or if you just couldn’t be bothered to figure out the answers. You can always give me or one of my colleagues a call and we can let you know whether you’re going to need an umbrella.

Case No. 1: Permissible general planning (Joffe v. City of Huntington Park (2011) 201 Cal.App.4th 592.) Case No. 2: Impermissible targeting (City of San Diego v. Rancho Penasquitos Partnership (2003) 105 Cal.App.4th 1013. Case No. 3: Impermissible targeting (delay) (Klopping v. City of Whittier (1972) 8 Cal.3d 39.) Case No. 4: Permissible planning (Contra Costa Water Dist. v. Vaquero Farms, Inc. (1997) 58 Cal.App.4th 883, 900.)

Image courtesy of Flickr by Benjamin Stäudinger

Image courtesy of Flickr by Rob Deutscher

Water District Not Liable In Inverse Condemnation When Water Pipe Breaks and Damages Property

Posted in Court Decisions, Inverse Condemnation & Regulatory Takings

California’s infrastructure is aging. There have been numerous reports of water line breaks and gas line leaks, and public agencies have been moving quickly to upgrade their utilities to minimize these risks and satisfy increasing demands. When incidents do occur, when do agencies face potential liability in inverse condemnation? A recent California Court of Appeal decision, Kelly v. Contra Costa Water District (Feb. 10, 2015) 2015 Cal.App.Unpub.LEXIS 924, while unpublished, provides some guidance.

In Kelly, the owners of a self-storage facility in Pittsburg, California, discovered water accumulating on their property. After a number of tests, it was determined that the water was coming from a cement water main running under the property. The local water district made numerous unsuccessful attempts to find the location and cause of the leak. Several years later, the water district’s engineer conducted a video inspection of the pipe’s interior and found an indentation in the pipe. The water district determined that the leak was small and intermittent and the repair did not need to be performed on an emergency basis. The repair was not completed until 2008.

Eventually, the water main leak caused cracks in the concrete slab running under some of the owner’s storage buildings. The property owner filed a lawsuit against the water district, which included causes of action for inverse condemnation, maintaining a dangerous condition of property, nuisance and trespass.

The Trial Court

The tort claims were tried to a jury and the inverse condemnation was tried to the court. The court sided in favor of the water district on the inverse condemnation claim, but the jury found the water district liable for trespass and awarded damages based on the repair costs. (The jury also found that the property owner was negligent at the time the property was constructed and assessed the owner’s percentage of fault at 20 percent, thereby lowering the award).

The Court of Appeal

The property owner appealed the trial court’s ruling regarding the inverse condemnation claim, but the Court of Appeal upheld the trial court’s ruling finding no liability. Since the water district unquestionably damaged the owner’s property, the question is why was there no liability?

The Court explained that a property owner may recover just compensation from a public entity under the theory of inverse condemnation for:

any actual physical injury to real property proximately caused by [a public] improvement as deliberately designed and constructed . . . whether foreseeable or not. This requirement is satisfied by a public improvement that as designed and constructed presents inherent risks of damage to private property, and the inherent risks materialize and cause damage.

The Court further explained that a claim for inverse condemnation requires a taking or damaging for public use that is based upon a policy decision by the public agency, and not simply the negligent act of a public employee. For example, in a case of alleged careless maintenance, as in this case, the plan of maintenance must be unreasonable to establish a taking – poor execution of a maintenance plan does not result in a taking.

Because the damage to the owner’s property was caused by negligent maintenance of the water main by the water district’s employees who failed to promptly locate and repair the leak (rather than by the design or construction of the pipe or the overall water delivery system), there was no liability in inverse condemnation.

Conclusion

Kelly supports the conclusion that as long as a public agency is undertaking reasonable efforts to maintain its infrastructure, there will be no inverse condemnation liability for damages caused by leaking or faulty pipes. However, where an agency understands that its pipes need to be replaced, but simply waits until the pipe breaks before fixing it, such a maintenance program will be viewed as inadequate, and lead to potential exposure in inverse condemnation.

Limiting exposure to inverse condemnation claims is important, as attorneys’ fees attach to the finding of liability. Nevertheless, agencies can still be found liable for other tort claims, such as trespass or negligence, when infrastructure is not properly maintained.

 

U.S. Supreme Court Agrees to Take a Second Look at Takings Case

Posted in Court Decisions, Inverse Condemnation & Regulatory Takings, Uncategorized

The burning question, is why?  While this is not the first time the U.S. Supreme Court has ever granted a petition for review in the same case, it is certainly not common.  And, it is downright uncommon for the Supreme Court to grant a second petition for review when the central issue in the case is a takings issue.  So what is the Supreme Court planning to do?  Are they going to revisit their 2013 decision and find that they made a mistake, and that the Hornes are actually required to first bring their takings claim in the Court of Federal Claims?  Or, is the Supreme Court going to find that contrary to the conclusion of the U.S. Court of Appeals for the Ninth Circuit, the takings claim must be analyzed as a physical taking, as opposed to a regulatory taking?  Or, is the Supreme Court going to address the merits, and find that the actions of the federal government resulted in a taking?  Unfortunately, we all just have to wait and see.

As a quick refresher, here is a very short summary of the relevant history.

  • During the Great Depression, in order to stabilize the market, Congress passed the Agricultural Marketing Agreement Act of 1937 (AMAA), and the Secretary of Agriculture promulgated the California Raisin Marketing Order.  The AMAA and the Marketing Order impose a number of regulatory obligations on “raisin handlers,” including imposing reporting and reserve requirements that are enforced through the imposition of civil penalties.
  • After producing raisings in California for almost 30 years, the Hornes, in an attempt to avoid the limitations and requirements imposed by the AMAA and the Marketing Order on “raisin handlers,” expanded the scope of their operations.
  • In 2001, the U.S. Department of Agriculture notified the Hornes that despite the expansion of their operations, they were still acting as “raisin handlers,” and were therefore subject to all of the limitations and requirements in the AMAA and Marketing Order.
  • Despite the notice, the Hornes refused to comply with the AMAA and Marketing Order, and the U.S. Department of Agriculture initiated an enforcement action.
  • In 2006, an administrative law judge found that the Hornes were “raisin handlers” and that they failed to comply with the limitations and requirements in the AMAA and Marketing Order, and ordered the Hornes to pay more than $200,000 in civil penalties, $8,000 in assessments, and almost $500,000 for their failure to hold the necessary raisins in reserve.
  • The Hornes challenged the decision in federal district court, but the district court affirmed the order of the administrative law judge.  With respect to the reserve requirement, the district court found that the requirement merely constituted an “admission fee,” not a taking.
  • On appeal, the Ninth Circuit held that the takings claim was not ripe because the Tucker Act obligated the Hornes to first file their claim in the Federal Court of Claims.
  • In June 2013, the U.S. Supreme Court issued a unanimous opinion in Horne v. Department of Agriculture (2013) 133 S.Ct. 2053, holding that California raisin handlers could maintain a takings claim as an affirmative defense to an enforcement action filed by the United States, and that the Hornes were not required to first file their claim in the Federal Court of Claims.
  • On remand, the Ninth Circuit concluded that because the government had neither seized any raisins nor removed any money from the Hornes’ bank account, the government’s actions had to be analyzed under “the doctrinal thicket of the Supreme Court’s regulatory takings jurisprudence.”  Applying the “nexus” and “rough proportionality” standard set forth in Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374, the Ninth Circuit held that the government’s actions did not rise to the level of a taking.
  • In January 2015, the U.S. Supreme Court granted a second petition for review.

For a more detailed discussion of the history above, see our prior blog posts here and here.

Defining the “Larger Parcel” in Eminent Domain & Inverse Condemnation Actions

Posted in Inverse Condemnation & Regulatory Takings, Valuation

When a public agency acquires a portion of property, under California law the property owner is entitled to “severance damages” — or damages to the remainder portion of the property that was not acquired.  Usually, determining what constitutes the “remainder property” is relatively straight-forward.  But not always.  And, the determination could have a significant impact on the amount of compensation the public agency must pay, as a property owner is not entitled to compensation for damages to separate and independent parcels that are not touched by the condemnation.

So how is the “larger parcel” determined?  In California, the judge ultimately decides what constitutes the “larger parcel” by utilizing a three-part test, evaluating whether the property has (i) unity of ownership, (ii) unity of use, and (iii) contiguity.  What does this mean?

  • Unity of Ownership:  the first test is unity of ownership, which requires that all the property is owned by one owner or one set of owners.  But this is not necessarily a hard and fast rule:  courts will consider equitable ownership, and will also factor in who controls various ownership interests (such as separate corporate entities that share similar officers or members).
  • Unity of Use:  the second test is unity of use, which requires the property to be put to one overall use.  This is the most critical of the three factors, and the one that is the subject of the most dispute and scrutiny.  This factor becomes even more complicated when the use does not currently exist, but is a purported prospective or future use.   When analyzing potential future uses, courts consider whether there is a reasonable probability that the property will be available for development as a single economic unit in the reasonably near future.  This is a fact-intensive determination which is typically based on the property’s highest and best use and the following factors:
    • Evidence of the existing uses of the property
    • Time and expense necessary for their termination
    • Existing and proposed zoning applicable to the several parcels
    • Physical adaptability of the property for use as an integrated whole
    • Property owner’s plans for development
    • Local regulatory climate
    • Local market conditions
  • Contiguity:  the third test is contiguity, which generally means the property is contiguous and not physically separated.  This factor is probably given the least amount of weight by the courts, as properties have been found to constitute a larger parcel even when separated by a street or other division.

The “larger parcel” test can create massive discrepancies in appraisal opinions.  If you’re interested in learning more about this particular issue, and how it can affect regulatory takings claims, assemblage theories, and damages in eminent domain and inverse condemnation actions, I will be presenting on this topic at the ALI-CLE Eminent Domain & Land Valuation Litigation Seminar later this week in San Francisco.  Feel free to join me, or give me a call or shoot me an e-mail and I can pass along my presentation.

 

Valuing Rail Corridors

Posted in Court Decisions, Valuation

In the aftermath of last year’s Rails-to-Trails DecisionMarvin M. Brandt Revocable Trust v. United States, 572 U.S. ___ (2014), the valuation of rail corridors may become increasingly necessary.  Typically there are three approaches to valuing rail corridors:  1) Across-the-Fence approach, 2) Comparable Sales approach and 3) Income approach.

  1. The Across-the-Fence approach (“ATF Method”) — the most popular approach for valuing rail corridors — appraises land utilized as a right-of-way by assuming that its market value per square foot is equal to the value of adjacent or adjoining land.  Such value is then altered depending on the permissible and actual uses of the property, the typical parcel size and other factors considered in conventional appraisals.  This value then may be further adjusted by the enhancement or corridor factor, and the use factor.
  2. The Comparable Sales approach appraises land through comparison of the subject property with similar properties that have recently sold.  Adjustments can be made based on various elements of comparison.  However, transportation corridors are special use properties, meaning that they are not usually found in the traditional market.  And even when there are comparisons, there can be great discrepancies depending on the location of the corridor.  Thus, the Comparable Sales approach may not always be usable in the traditional manner when valuing rail corridors.
  3. The Income approach values property by determining the future net income that the property can be expected to earn.  This approach is difficult to use when valuing transportation corridors due to the difficulty in allotting income from a small segment of a larger railroad system.

The California Court of Appeal has found the use of the ATF Method appropriate when valuing a transportation corridor.  (See e.g., Union Pacific Railroad Company v. Santa Fe Pipelines, Inc. (2014) 231 Cal.App.4th 134; Southern Pacific Transportation Co. v. Santa Fe Pipelines, Inc. (1999) 74 Cal.App.4th 1232.)  In Union Pacific Railroad Company, the Union Pacific Railroad Company utilized the ATF Method to determine the amount of rent owed under an agreement between the railroad company and Santa Fe Pipelines.  While the Court approved the ATF Method as an approach to valuation, it concluded that the trial court did not make a proper finding regarding the interest the railroad company had in the subject property, such as whether the railroad cpmpany owned the property in fee.  The Court remanded the case, in part, directing the trial court to first make a proper determination of the railroad company’s property interest and then to analyze the ATF Method factors.