California Eminent Domain Report

On its face, the City of Rancho Cordova's eminent domain action to acquire a vacant parcel for redevelopment purposes is a familiar story. The government wants to seize private property in order to turn the property over to a third party for redevelopment.  This is the basic fact pattern that caused the national eminent domain uproar that started when the Supreme Court issued its 2005 Kelo decision.

Unlike in Kelo, however, in California the government typically cannot take such steps without making appropriate findings that the property being condemned is "blighted."  This requirement may not actually apply here, as the property's intended use may qualify as a public use.   But in any event, the property exists as a vacant, overgrown weed patch, so a blight finding doesn't seem to be much of a stretch.

Why, then, is the case getting so much media attention?  The controversy lies in the fact that the city intends to turn the property over to the Los Rios Community College District for construction of a satellite campus.  And even that might not raise eyebrows were it not for the fact that the property's owner had a signed contract to sell the property to Los Rios for the very same purpose. 

Specifically, Los Rios entered into a contract to buy the property for $8.6 million.  Then, allegedly just weeks after Los Rios walked away from the deal, the City moved forward with its plans to acquire the property in order to turn it over to Los Rios.  And (here's the important part), the city offered only about $4 million -- less than half the contract price. 

According to an August 10 Sacramento-area CBS news story by Mike Luery, On The Money: Land Grab?: Multi-Million Dollar Fight in Rancho Cordova, the courts will now need to sort out whether the city meets the requirements to condemn the property in light of the underlying facts. 

Not surprisingly, the property's owner is crying foul: 

"I had a contract with Los Rios," said Sam Fong. "And they (Rancho Cordova) interfered with the contract and they're taking the property for half the contract price."

I don't know nearly enough about the real facts here to offer a meaningful prediction about what might happen, but I do know that if the city in fact induced Los Rios to walk from its deal under a promise to get them the property for less than half the price, the owner may well have a legitimate complaint.

That said, even if the owner's allegations prove true, I'm not convinced it trumps the city's right to take the property.  Assuming that (1) the area is in fact blighted, (2) the city made a proper offer at the property's current fair market value, and (3) the city met the other procedural requirements for initiating an eminent domain action, they should get to proceed with the eminent domain action. 

And, unless the owner can prove a precondemnation damages claim, no reason exists that the city should have to pay more than the property's fair market value on the date of value.  (Note that a precondemnation damages claim is not out of the question here.  If the owner can prove the city's conduct qualifies as "unreasonable precondemnation conduct," this could support a precondemnation damages claim, even though the facts are not what one generally thinks of when analyzing precondemnation damages.) 

Apart from all of that, the city's potential liability outside the context of eminent domain is an entirely different question.  I see no reason the city could not be liable for tortious interference, for example, even if the court upholds its right to take.   In such case, the damages are pretty easy to identify:  the difference between the compensation awarded in the eminent domain case and the $8.6 million contract price.

And what about Los Rios?  I haven't seen any discussion about whether the owner might possess a breach of contract claim, but one could easily surmise that if Los Rios backed out of the deal simply because it knew the city would condemn it at a lower price, any stated basis for canceling the deal could be viewed as an ineffective pretext. 

On the other hand, Los Rios will presumably offer an explanation for why it was justified in backing out of the deal that has nothing to do with the city or eminent domain, and the city will argue that it is taking the property for unquestionably legitimate purposes, and that it should not penalized because it happens to be condemning at a time when market conditions have deteriorated. 

This will be a fun one to follow.