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

With the elimination of redevelopment agencies in California, we've been spending quite a bit of time lately discussing the impacts of Proposition 13 on California's budget woes as government agencies continue to fight over a slice of the shrinking property tax budget pie.  Proposition 13 has led to another interesting property valuation battle between county tax assessors and petroleum refineries, and the California Court of Appeal recently issued a published decision, Western States Petroleum Association v. State Board of Equalization, settling the dispute.

Prop 13 Background:  By way of background, Proposition 13 -- enacted in 1978 -- provides that real property taxes shall be based on the property's acquisition price (the "base year value"), and such amount cannot be increased more than 2 percent per year.  It essentially changed our real property tax system from one based on the current market value of the property to one based on the acquisition value of the property, plus an allowable increase over time.  Shortly thereafter, Proposition 8 was adopted to amend Prop 13 and make clear that if property values decline below the taxable indexed value, the taxable value may be adjusted down to reflect the property's fair market value.

Valuation of Land, Improvements & Fixtures:  In order to implement Prop 13, the State Board of Equalization (SBE) then adopted Rule 461, which provides that land and improvements shall constitute an appraisal unit, and fixtures, equipment and other improvements pertaining to the realty shall constitute a separate appraisal unit.  Ignoring our recent real estate recession, this valuation methodology created a perfect world for industrial property owners:  on the one hand, as property values continued to rapidly increase, property taxes were subject to the Prop 13 cap; on the other hand, as fixtures and equipment continue to depreciate over time, property taxes on these items had no floor.  Thus, industrial property owners could actually see their property taxes decline despite a surging real estate market.

The Litigation:  Not too happy with this valuation approach, in 2007 (the market peak), the SBE adopted Rule 474, which directed county tax assessors to start treating land, improvements, and all fixtures and equipment as a single appraisal unit for petroleum refineries.  This would, of course, mean that all the depreciation of the fixtures and equipment would be wiped out by the increasing property tax values (meaning refineries' property taxes would increase).  Petroleum refineries fought back and filed a lawsuit challenging the SBE's new regulation.

The trial court declared that the SBE's new regulation did not pass constitutional muster, as it violated Prop 13 and contradicted the SBE's own regulations.  On appeal, the Court agreed, holding that the SBE's proposed regulation would

allow for the adoption of new valuation formulas by which the framework governing real property could be manipulated to avoid the restrictions on real property taxes imposed by the voters when they approved Prop. 13 and Prop. 8.

So, petroleum refineries win.  This is good news for industrial property owners across the State; if the court had upheld this regulation, it's probably not much of a stretch to think the SBE might turn to other types of properties in another effort to collect more taxes.

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On January 19, 2012, the California Court of Appeal issued an unpublished decision addressing this very question.  Specifically, in Flying J, Inc. v. Department of Transportation, Case No. F060545, the Court of Appeal affirmed the dismissal of plaintiff's claim for lost profits, finding that plaintiff's evidence was not sufficiently comparable in character and its calculations relied on too much conjecture about future events.      

Plaintiff Flying J operates truck stops.  In 1997, it purchased an 18.8 acre parcel adjacent to State Routes 14 and 58 in the Mojave Desert for a new facility.  Prior to commencing construction, Caltrans sued to condemn a 4.43 acre strip of the property for a highway improvement project.

In 2001, Flying J and Caltrans settled for $14,800, with one key twist: The agreement also called for Caltrans to deliver to Flying J – subject to the approval of the California Transportation Commission – a deed for a 20.57 acre parcel located adjacent to the remaining portion of Flying J's property in exchange for a payment by Flying J of approximately $88,000. 

Shortly thereafter, Flying J delivered a grant deed for the 4.43 acre parcel and a payment of approximately $87,954.  Then things went sideways. The California Transportation Commission refused to approve the transfer of the 20.57 acre parcel to Flying J, and instead voted to put the property up for public auction.  In May 2004, after Flying J had filed a breach of contract action against Caltrans, a competitor of Flying J purchased the 20.57 acre property at public auction. 

In the lawsuit, Flying J claimed that Caltrans breached the settlement agreement and that the breach resulted in a loss of approximately $60 million in profits: $13 million directly attributable to the inability to open the Mojave truck stop, plus another $47 million attributable to a purported synergistic effect that the Mojave truck stop would have had on Flying J's other locations (Flying J eventually abandoned this claim of synergistic effect). 

At trial, in support of the $13 million in direct lost profits, Flying J presented testimony by a certified public accountant and an expert in the trucking and travel plaza industry.  Specifically, averaging the annual profits from five "comparable" truck stops that Flying J's trucking and travel plaza industry expert had identified, the accountant concluded that the breach resulted in approximately $13 million in lost profits. 

Caltrans moved for partial nonsuit as to Flying J's claim for lost profits, and the trial court granted the motion and instructed the jury that lost profits were no longer at issue.  After approximately two weeks of deliberations, the jury found that Caltrans had breached the settlement agreement and awarded damages of $991,824.  Flying J timely appealed the trial court's order granting partial nonsuit.

On appeal, the Court found that lost profits are recoverable as consequential damages so long as they can be proven to be reasonably certain both as to their occurrence and their extent.  Reviewing the testimony of Flying J's two experts, the Court found that lost profits had not been proven with sufficient certainty.  Specifically, the Court found that the five "comparable" locations identified and relied on by Flying J's experts were not "substantially similar" to the proposed Mojave location, and therefore could not be used to calculate lost profits.  The Court also noted numerous contingencies that would affect both the existence and extent of lost profits, and that in order to reach the $13 million figure, Flying J's experts had to make a number of favorable assumptions.  Accordingly, the Court affirmed the trial court's order granting partial nonsuit.

Flying J, Inc. v. Department of Transportation is a bit of a mixed-bag.  While the Court confirmed that lost profits are potentially available to a plaintiff seeking consequential damages, it also placed a number of constraints on their recovery, some of which may be particularly difficult to overcome, especially with respect to a new or unique business.  Nonetheless, one of the clear takeaways from this decision is the need for a robust comparables analysis in order to justify any claim of lost profits.

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Although best known today as the voice of bumbling Mayor West on Comedy Central’s Family Guy, Adam West’s real claim to fame was playing the caped crusader in the 1960s television series Batman.  Batman and the Boy Wonder regularly matched wits with the Riddler, a villain who would deliver clues to his elaborate criminal plans by deceptively simple riddles.  A recent unpublished decision, City of Southgate v. Jauregui (Court of Appeals of California, 2nd District, Division 4, No. B228334) both poses and solves a deceptively simple riddle, worthy of the Riddler himself. 

Riddle me this: When is a property owner not an owner for purposes of receiving a condemnation award?

In City of Southgate Salvador and Norma Jauregui owned a property that was condemned by the City of Southgate for a street improvement project.  The Jaureguis were the fee owners as of the effective date of the order for prejudgment possession.  After the City took possession and began construction of the project, Golden Security Bank, the holder of a first deed of trust, foreclosed and took title in its own name.  The Jaureguis and the Bank then each claimed the right to receive the just compensation awarded for the taking of the property by the city.

The Jaureguis had a compelling argument. After all, under California law, when a condemning agency obtains an order of immediate possession and then takes possession of the subject proerty, the “taking” is deemed to occurred at that time.  (Redevelopment Agency v. Gilmore (1985) 38 Cal.3d 790, 800)  Accordingly, “the party who owned the property at that time is entitled to the condemnation award.”  In Re Rossi (Bankr. 9th Cir (1988) 86 B.R. 220, 224) the foregoing authority notwithstanding, both the trial court and court of appeal concluded that the Bank, not the Jaureguis, was entitled to receive the condemnation award.

The Jaureguis position was undermined by the small matter of a bankruptcy filing by Norma Jauregui. She filed for bankruptcy before the effective date of the order for prejudgment possession.  As a result, control of the condemned property was transferred to the trustee of the bankruptcy estate.  He concluded that, because the outstanding loan obligations exceeded the value of the property, the automatic stay should be lifted and the Bank allowed to proceed with the foreclosure sale.  The Bank then entered into a compromise agreement with the City whereby the Bank agreed to make a full credit bid of $1.53 million to purchase the property at the foreclosure sale, and then transfer the property to the City for $1.53 million.  Salvador Jauregui objected to the compromise agreement in the bankruptcy court, but his objections were rejected.  The bankruptcy court lifted the automatic stay allowing the Bank to foreclose on the property and convey it to the City at the agreed price. 

While the Jaureguis technically retained fee title as of the effective date of the order for prejudgment possession, the property itself  had become an asset of the bankruptcy estate.  Having failed to convince the bankruptcy court that allowing the bank to foreclose and then convey the property to the City for a stipulated amount, the Jaureguis could not get a second bite at the apple by making the same argument in the state court eminent domain action.

Holy res judicata Batman!

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Yesterday, we reported briefly on the Supreme Court’s decision in California Redevelopment Assn. v. Matosantos.  As many of you undoubtedly know by now, the outcome was the nightmare redevelopment agencies feared most, but that many (including us) had forecast after listening to oral argument last month. 

The Court upheld ABX1 26, allowing the dissolution of California’s redevelopment agencies to proceed, but struck down ABX1 27, the “voluntary” buy back program that would have allowed redevelopment to continue.  In particular:

• The Court had little difficulty upholding ABX1 26, the law eliminating California’s redevelopment agencies. The Court reasoned that because redevelopment agencies were created by the Legislature, the Legislature could also eliminate them:  “A corollary of the legislative power to make new laws is the power to abrogate existing ones. What the Legislature has enacted, it may repeal.” 
• When it came to ABX1 27, the Court felt differently.  All but Chief Justice Cantil-Sakauye concluded that the “voluntary payment” portions of ABX1 27 run afoul of Proposition 22, adopted by voters in November 2010. The Court further concluded that the balance of ABX1 27 was not severable from the improper payment provisions, and the Court struck down ABX1 27 in its entirety. 

Though as a technical matter the CRA obtained a split decision (successfully attacking one of the two laws), the outcome represents a self-described “worst case scenario” that is obviously not what redevelopment proponents had in mind when they filed the lawsuit.  That said, the result is not too surprising to those who followed the oral argument, which focused largely on three issues:

1. The fact that redevelopment agencies were created initially by the Legislature, which would, absent some constitutional prohibition, mean that the Legislature could also abolish them.
2. The fact that the “voluntary” payments under ABX1 27 were not particularly voluntary, since failure to make them meant the redevelopment agency would be eliminated.  And, if not voluntary, the payments seemed to run afoul of Proposition 22.
3. The question of whether the two laws were so intertwined that striking down one (presumably, ABX1 27) would necessitate striking down both. 

Much as it telegraphed during oral argument, the Supreme Court started by concluding that ABX1 26 – the dissolution bill – passed constitutional muster.  Rejecting the argument that Proposition 22 created a constitutional right for redevelopment agencies to exist, the Court found no discussion of redevelopment agencies taking on constitutional stature, and without some explicit mention of such a profound shift in the law, the Court would not imply any such intent.  As the Court summarized, the drafters of legislation do “not, one might say, hide elephants in mouseholes.” 

The Court moved on to ABX1 27, focusing its attention on the “voluntary” payment program.  The Court concluded that ABX1 27 was substantively indistinguishable from earlier efforts by the State to shift property tax increment from redevelopment agencies to the State’s educational revenue augmentation funds (“ERAFs”) – the very circumstance Proposition 22 sought to prevent. 

The Court then put the nail in the ABX1 27 coffin: “A condition that must be satisfied in order for any redevelopment agency to operate is not an option but a requirement.  Such absolute requirements Proposition 22 forbids.” 

Finally, the Court turned to the severability question, needing to decide whether ABX1 26 could stand alone, or whether it must fall given ABX1 27’s fate. The Court responded to claims that a number of legislators had reportedly opined that the Legislature would not have wanted such an outcome by looking at the statute’s specific severability clause stating the opposite, concluding that

whatever individual legislators may have said at one point or another, what the Legislature actually did establishes it would have passed [ABX1 26] irrespective of the passage of [ABX1 27], and that [ABX1 26] is volitionally separable. Consequently, it is severable.

Thus, the Court’s final conclusion: ABX1 26 stands, while ABX1 27 falls. 

What Happens Next: the Mechanics? The Court examined some of the mechanics of ABX1 26’s implementation in light of the partial stay and the passage of time that has rendered some of the law’s time frames impossible. The Court concluded that it had the power to reform the law, and it chose a superficially simple solution: all initial dates in ABX1 26 are shifted four months, representing the time period during which the Supreme Court’s partial stay was in place. 

But there is a twist. For any obligations that span multiple fiscal years, the Court did not reform the deadlines. Instead, only those trigger dates which fall before May 1, 2012, get shifted. This means, for example, that for the distributions required to be made on January 16 and June 1 every year, the January 16, 2012, distribution is now due May 16, 2012, but the June 1, 2012, distribution (and all future distributions) remain due as set forth in ABX1 26. 

What Happens Next: Implementation? Moving beyond the technical issues, the real question is what happens to redevelopment obligations and assets. This will be the subject of considerable discussion in upcoming weeks, but there are a few, bright-line rules people should know:

1.  For obligations incurred prior to January 1, 2011, the obligations remain valid and binding. 
2. For deals under negotiation when the Supreme Court stay was issued, the redevelopment agencies have no power to consummate the deals. 
3. Remaining redevelopment assets will be sold. 
4. If the agency transferred any assets to its city/county or another public agency after January 1, 2011, the transfer is potentially subject to ABX1 26’s “claw back” provisions. 

What Happens Next: a Legislative Compromise? Finally, entering into the realm of pure speculation, there is already some murmuring about a possible legislative compromise designed to reinstate some form of redevelopment. Whether any such compromise sees the light of day remains to be seen. And even if it does, considerable obstacles may exist. 

In particular, any legislative effort to reinstate some form of redevelopment must overcome the very problem that led to the demise of ABX1 27: how to fund “Redevelopment 2.0” without running afoul of Proposition 22. Moreover, a legislative compromise only works if the Governor approves it, and Governor Brown’s early comments do not suggest he is dissatisfied with the Court’s holding. 

For more information on the opinion and its aftermath, please join us for a webinar, Supreme Court Upholds Elimination of Redevelopment in California - Now What? It will take place on January 4, 2012, at 2:00 p.m. 

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Today, the California Supreme Court issued its much-anticipated opinion in California Redevelopment Assn. v. Matosantos, the case challenging ABX1 26 and ABX1 27.  In a decision foreshadowed by the tone of last month's oral argument, the Court upheld ABX1 26, but struck down ABX1 27 as a violation of California's Proposition 22:

• "Assembly Bill 1X 26, the dissolution measure, is a proper exercise of the legislative power vested in the Legislature by the state Constitution."
• "A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency‘s community sponsors to state funds benefiting schools and special districts. Proposition 22 ... expressly forbids the Legislature from requiring such payments."

This means that the law eliminating California's redevelopment agencies stands, while the law that would have provided a mechanism to reinstate redevelopment agencies upon making certain "voluntary" payments was struck down.  The bottom line:  the decision ends redevelopment in California.

We will have more on the opinion in the very near future.  In addition, we will be hosting a free webinar on Wednesday, January 4, 2012, at 2:00 p.m. to discuss the opinion, its implications, and what happens from here.  We hope you'll join us, you can register here. 

UPDATE, 2:05 p.m.  While we digest the opinion and attempt to write something meaningful about it, Robert Thomas has already managed two substantive blog posts on the case today, including a short summary of the opinion and a good collection of early reports on the decision. 

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Yesterday, we wrote about the Avenida San Juan Partnership v. City of San Clemente decision.  For more information on the decision, see the following:

• Our E-Alert, Court of Appeal Upholds Regulatory Takings Decision Under Penn Central Test;
• Man Bites Dog! California Property Owner Wins Regulatory Taking Case in the California Court of Appeal, a blog post by Gideon Kanner on Gideon's Trumpet;
• Either Reverse Your Unconstitutional Spot Zoning, Or Pay. Your Choice, by Robert Thomas on his inversecondemnation.com blog; and
• Eminent Domain: Winning Owner In Inverse Condemnation Battle Cannot Recoup Fees By Attorney Owner Or Reap A Fee Multiplier Request, a piece in California Attorney's Fees focused, not surpisingly, on the attorneys' fees portion of the opinion.

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Last April, we reported on a bizarre case arising out of the City of San Clemente's attempt to down zone a piece of property.  The trial court had concluded that the down zoning constituted a taking and ordered the City to rescind a decision supported by that down zoning.  The City had denied an application to develop the property because the application did not conform to the current general plan and zoning ordinance (the City seems to have sidestepped the fact that the development applications included applications to amend the general plan and zoning). 

In addition to a writ of mandate ordering the City to rescind its decision, the Court also awarded damages of $1.3 million, representing the overall value of the property ($2.8 million), less the anticipated cost to build a driveway needed to support its development ($1.5 million).  Following a post-trial motion, the Court amended the judgment to make clear that the City had the choice of either (1) rescinding the denial based on the down zoning or (2) paying the damages award.

Yesterday, the Court of Appeal issued its decision in Avenida San Juan Partnership v. City of San Clemente.  It upheld the writ and the determination that the owner was entitled to a damages award, but it remanded the case for recalculation of the amount of the award.  It's a long, complicated opinion, and we'll just hit some of the high points for now.

Spot Zoning.  The Court held that the City had specifically targeted this property for down zoning, leaving it as an "island" of "minimum lot size zoning in a residential ocean of substantially less restrictive zoning."  It didn't help that the enabling legislation that created the new RVL (residential, very low) zoning had described the zone as intended for preserving "open space in canyons" by rezoning "significant acreage."  The subject property was less than three acres - and not located in a canyon.  This was enough to qualify as "irrational discrimination" under cases such as Hamer v.
Town of Ross (1963) 59 Cal.2d 776 and Arcadia Development Co. v. City of Morgan Hill (2011) 197 Cal.App.4th 1526, 1536.   

Penn Central and "Economically Viable" Uses.  The City argued that its action fell short of a regulatory taking, as a matter of law, because the RVL zoning did not leave the owner with no economically viable use of he property, a fatal flaw under Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003.  The Court held that this view "is too limited," and that a taking occurs where a regulation goes "too far," even if some economically viable use remains.  (See Palazzolo v. Rhode Island (2001) 533 U.S. 606.)   Where this occurs, courts look to the "Penn Central" test, which the California Supreme Court has held contains three "core" factors:

1. The economic effect on the landowner;
2. The extent of the regulation's interference with investment-backed expectations; and
3. The character of the governmental action.

The Court quickly concluded that all three factors "readily appl[ied]" in this case. 

Timeliness.  As we have reported in the past, regulatory takings claims often fail on procedural grounds, either because they are too late, missing the applicable statute of limitations, or because they are premature, failing on ripeness grounds.  (We've even seen cases, such as MHC Financing Limited Partnership Two v. City of Santee, where claims failed because they were both too late - and too early.) 

Here, the City argued that the owner waited too long to challenge the RVL zoning.  The Court disagreed, concluding that the statute began to run on the challenge only when the City denied the owners' development applications in 2007.   The Court went through a painstaking analysis of the difference between "facial" and "as applied" challenges, holding that the owners' challenge clearly fell on the "as applied" side of the ledger, making it timely. 

The City also argued that the owners' claim was not ripe because the owners failed to apply for entitlements to build what the RVL would have allowed them:  a single dwelling.  The Court rejected this argument as well, holding that under Palazzolo, the City's denial of the application qualified as final. 

Damages.  The Court examined closely the damages award, ultimately concluding that the trial court's methodology was flawed.  The trial court had performed a simple analysis, taking opinions of the value of the property absent the RVL zoning, and subtracting out the cost the owners would have incurred to build the (expensive) driveway necessary to support the property's development. 

The Court correctly noted that this methodology ignores the fact that the takings conclusion was premised on on the Penn Central test, not a "no economically viable use" theory.  Because of this, damages had to take into account the fact that the property still has some value, even with the RVL zoning in place:  "A very large taking is not a total taking."

There were a number of other issues addressed in the Court's opinion, including an interesting attorneys' fees discussion, but I think they go beyond the scope of a blog post.   As we digest the opinion a bit further, we'll probably have more to say.

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One of the peculiarities with California's eminent domain law lies with the way it addresses situations in which an agency makes a deposit of probable compensation in a case in which one or more of the defendants raise a right-to-take challenge. 

The issue came to a head yet again, with the California Supreme Court holding that a lender's withdrawal of a condemnation deposit does not result in a waiver of the property owner's right to take challenge.  The decision, Los Angeles County Metropolitan Transpiration Authority v. Alameda Produce Market (November 14, 2011), chronicles the long and twisted history of this area of the law, but in the end, the Court struggles with the real problem:  the law, as written, fails to address properly the two key policy concerns at play. 

The deposit of probable compensation plays a key role in eminent domain cases.  It establishes the date of value in most cases, but we sometime forget why the deposit is used to set the date of value.  The deposit represents an approximation of the property's value.  By the agency's making a deposit which quickly becomes available to the property owner, the owner gains the chance to keep those funds in the real estate market. 

This is crucial, because it allows - at least theoretically - the owner to maintain its position in the real estate market.  The idea is simple:  the owner can withdraw the deposit of probable compensation, invest that money in another property, and still enjoy the benefits of market appreciation.  Thus, by providing the owner with the capital to reinvest as of the deposit date, it is "fair" to use that date as the date of value. 

Of course, it doesn't always work this way, and agency's are often accused of making woefully inadequate deposits that prevent the owner from investing in comparable property.  And, of course, there is always a delay between the date of deposit and the date on which the owner has the funds available and can secure replacement property.  But conceptually at least, the idea makes sense. 

Where a right-to-take challenge combines with a deposit, however, another key policy concern comes into play.  Condemning agencies have a legitimate interest in not having deposits withdrawn only to later lose a right-to-take challenge, leaving them trying to pursue the party that withdrew the deposit.   This risk is unfair to the agency.

Thus, the basic rule:  for a party to withdraw a condemnation deposit, they must waive their right-to-take challenge.  (See Code of Civil Procedure section 1255.260.)   But this rule misses both key policies.  On the one hand, it prevents someone with a legitimate right-to-take challenge from withdrawing the deposit and using that money to invest in replacement property.  Yet this does not prevent the deposit from establishing the date of value, meaning the owner can "miss" a rising market.

On the other hand, as the Court held in the Alameda Produce case, where the party withdrawing the deposit is not the same as the party making the right-to-take challenge, no waiver occurs.  Thus, the agency faces the real risk that Party A will walk away with the money, never to be seen again, while Party B pursues its right-to-take challenge which, if successful, places the agency at huge financial risk. 

There's a very simple solution to all of this, and the Supreme Court mentioned it.  Instead of speaking in terms of waiver, all the law needs to do is ensure that if a condemnation deposit is withdrawn while a right-to-take challenge is pending, the withdrawal must be bonded.  This

1. Secures the agency's money,
2. Allows the withdrawing party to utilize the funds to reinvest, and
3. Allows legitimate right to take challenges to proceed, all while 
4. Allowing us to preserve the idea that the deposit date is properly used as the date of value. 

Current law creates no such mandatory bonding, leaving both key policy interests unprotected.  In the end, I think the Legislature should step up and modify these rules so that they in fact protect the two key policy interests in play.  Alternatively, our trial courts should be prepared to deny all requests for withdrawals of condemnation deposits until (1) all right to take challenges are resolved or (2) the money withdrawn is properly bonded.  

Absent that, we are in for yet more cases where either the owner is put to the unfair choice of missing the opportunity to use the condemnation deposit or abandoning a right to take challenge, or the agency is placed at risk of losing its condemnation deposit where one party withdraws the money as another challenges right to take. 

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Before a public agency can exercise the power of eminent domain, it must adopt a resolution of necessity making certain findings in support of the taking of property.  The resolution defines the scope of the agency's acquisition, and the agency is typically prevented from contradicting the terms of the resolution in the eminent domain action.

There is a delicate balancing-act in drafting the scope of the taking in the resolution.  If the scope is too narrow, the agency may ultimately need to go back and acquire additional rights or property.  On the other hand, if the scope is too broad, it provides an opportunity for property owners to present a claim for much greater damages.  We've seen numerous eminent domain cases go to trial based on a dispute as to the scope of the take and what actions the resolution of necessity allows the condemning agency to undertake.  

A recent unpublished California Court of Appeal decision, People ex rel. Department of Transportation v. 927 Indio Muerto, provides an example of an eminent domain case going to trial primarily based on a dispute over the interpretation of the terms of a resolution of necessity.  The case involves Caltrans' acquisition of a fee and easement interest in a portion of property in an effort to expand Highway 101 in Santa Barbara County.  The resolution of necessity adopted by the California Transportation Commission provided that the acquisition included the right to enter the owner's remaining property at any time within 120 days after an order for possession or final judgment to complete work related to the project.

The court granted Caltrans' motion for prejudgment possession, the tenants on the property were temporarily relocated, and upon completion of the project, the tenants returned to the property.  The 2,600 square foot easement portion of the acquisition was paved with concrete and Caltrans allowed the tenants to utilize this area for their business operations.

At trial, Caltrans' appraiser testified that as a result of the acquisition, the businesses suffered no loss of goodwill.  The business' appraiser testified they suffered a $710,000 loss of goodwill.  The jury awarded the business $75,000 for loss of goodwill.  The owners and tenants appealed on a number of issues, primarily based on the terms of the resolution of necessity. 

1. Did the Resolution of Necessity Authorize Caltrans to Re-Enter the Property?  The owner contended that the resolution of necessity was vague and could be interpreted to allow Caltrans to re-enter the owner's property for 120 days after final judgment.  The owner sought compensation accordingly.  The trial court refused to give this instruction, instead interpreting the resolution as giving Caltrans the authority to either enter (i) after an order for possession or (ii) after final judgment.  Since Caltrans entered after an order for possession, Caltrans had no right to re-enter after a final judgment, and the owner was not entitled to compensation based on such an interpretation.  The Court of Appeal agreed this was the appropriate reading of the resolution of necessity.
2. Did the Court -- as Opposed to the Jury -- Appropriately Define the Scope of the Easement?  The trial court made a finding that the resolution of necessity allowed the property owner and businesses to continue to utilize the area of the property encumbered by the easement, and it instructed the jury to issue its determination of just compensation based on this instruction.  The owner claimed that the jury -- not the judge -- should have decided this issue.  The Court of Appeal concluded this was an issue appropriately determined by the judge, not the jury, since the jury is solely to determine just compensation.
3. Was the Court's Interpretation of the Scope of the Easement Supported by the Evidence?  The property owner also argued that the trial court's interpretation of the scope of the easement -- that the owner/business could use the area for future business operations -- was simply contrary to the evidence.  The Court of Appeal disagreed, concluding there was substantial evidence that the businesses could continue to use the easement area, and in fact they were doing so at the time of trial. 

In this case, the trial court and the Court of Appeal both interpreted the resolution of necessity in favor of the condemning agency.  The agency likely benefitted from the fact that the project had been completed prior to trial and therefore it was much easier to rely on what had actually happened when interpreting the scope of the resolution.  If the trial took place before construction, the result might not have been as clear.  The case serves as a good reminder to closely review the scope of the proposed resolution of necessity before it is adopted.  

(NOTE to Business Appraisers:  you may want to read the opinion as there is a useful discussion about the exclusion of the business' appraiser's testimony regarding loss profits due to speculation.)

UPDATE:  On December 2, 2011, the Court of Appeal order this previously unpublished opinion publiblished.  The case is now citable precedent, Joffe v. City of Huntington Park (2011) 201 Cal. App. 4th 492.

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We've covered in the past the impacts property and business owners suffer when government agencies plan for public projects.  We've also covered when agency planning crosses the line and results in precondemnation damages or a de facto taking.  A recent unpublished Court of Appeal decision, Joffe v. City of Huntington Park, highlights (1) the types of impacts owners suffer and (2) the difficulty owners face in trying to recover for such impacts.

In Joffe, a related property owner and furniture manufacturing business claimed that the city repeatedly expressed a desire to acquire their property and surrounding properties for a new redevelopment project.  The owner was told for six years that the redevelopment project was on track and that its property would be acquired as part of the project.  The city went as far as:

• appraising the property and the business;
• analyzing relocation of the business;
• requesting that the owner obtain an independent appraisal for negotiation purposes;
• placing large signs in the vicinity announcing the project; and
• stating in writing that the property would be acquired for the project either voluntarily or involuntarily.

After six years, the project never proceeded, and the city never acquired the property.

The business claimed it needed a long lead-time to manufacture its furniture orders, and its customers became concerned it could not fulfill its obligations given the uncertainty of its future tenancy.  The business could not enter into long-term furniture contracts with major retailers due to the uncertainty and the retailers' contract penalty clauses should the business be unable to perform.  The business eventually went under, and as a result, the business suffered a loss of goodwill.

The property owner claimed it repeatedly tried to obtain new tenants, but no one was interested given the uncertainty of the ability to remain at the site.  Thus, the owner claimed it could not obtain fair market rent for its property.  Both the owner and tenant sought to recover for precondemnation, or Klopping, damages as a result of the city's actions.

The city claimed that its actions were not unreasonable, and it never "announced an intent to condemn," and therefore Klopping damages were never triggered.  The trial court agreed with the city, and the complaint was dismissed.  The Court of Appeal also agreed with the city, finding no precondemnation liability.

No Unreasonable Delay Following an Announcement of Intent to Condemn

The Court explained that where no resolution of necessity is adopted, the property owner must demonstrate that the agency's action resulted in a special and direct interference with the owner's property.  Here, the city's actions could have similarly impacted over 200 parcels within the proposed project area.  While the property and business owner clearly suffered due to the city's actions, the Court announced that the correct test in analyzing liability is to judge the agency's actions, not the impacts suffered by the owner.  The Court also concluded that the city's undertaking the appraisal process was required under the law, and that such acts do not cross the line to establish liability.  Similarly, informal representations of an intent to use eminent domain if no agreement is reached do not trigger Klopping damages.  In short, the Court held that the actions all fell within the context of general planning and did not rise to the level of demonstrating a present intent to acquire.

No Unreasonable Precondemnation Conduct

The plaintiffs alleged that the city's actions were done to intimidate them and force them to sell.  The Court disagreed, concluding that the actions on their face were in line with typical public agency activities when planning for public projects.  There was no evidence of extortion, no evidence of an intent to depress the value of the property, no evidence of false allegations or misrepresentations, or anything else establishing the city acted unreasonably.

The Joffe case highlights the devastating impacts property owners and businesses can suffer as a result of the drawn-out public project planning process.  It also highlights, however, the uphill battle owners face in trying to recover for such impacts.  

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As you may recall, we've been closely following an eminent domain action pending in Sacramento County Superior Court involving the Rancho Cordova Redevelopment Agency.  The case involves the RDA's efforts to acquire a 9-acre site owned by the Lily Company.  After the property owner lost its challenge to the RDA's right to take the property, the case proceeded to a jury trial with respect to the property's value.  The results are in, and it's not a happy ending (at least so far) for the RDA. 

The Sacramento Bee reports in its article, "Price tag sky rockets for Rancho Cordova in land case," that the RDA initially estimated the property's value at $2.2 million, but after taking into account contamination clean-up costs, it dropped its offer to $387,000.  The jury came back with a much different conclusion:  $7.9 million -- more than 20 times the agency's offer.  This value also included the remediation costs (meaning the jury really came in at $9.6 million, less $1.7 million for clean-up).  You can read more about the case on Gideon's Trumpet (our colleague Professor Kanner keeps a running tab of "lowball" offers by government agencies, although I'm not sure why his figures differ a bit from the Sacramento Bee article.) 

What's next?  The RDA can:

• Pay the judgment and record a final order of condemnation on the property, thereby transferring title to the RDA; 
• Appeal the jury's determination, but that's always an uphill (and expensive) battle; or
• Abandon the condemnation action, deciding not to go forward with the acquisition. (Absent some sort of prejudice, the Eminent Domain Law allows an agency to abandon an eminent domain action at any time, subject to the agency's paying the property owner's attorneys' fees and costs, along with any damages caused by the abandoned taking.)

We'll see what the agency ultimately does, but I doubt it likes any of the options.  

You may also be wondering how a redevelopment agency moves forward with a condemnation trial and pays a judgment given the pending California Redevelopment Association lawsuit before the Supreme Court which has essentially stayed all redevelopment agency activities.  If you happened to catch my presentation to IRWA Chapter 1 (Los Angeles) yesterday on the "Death (and Rebirth?) of Redevelopment," you may recall I mentioned that redevelopment agencies are still allowed to pay enforceable obligations; a judgment in condemnation would fall under this category, so here the RDA can fork over the money.

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When we think of some of the most well-recognized and controversial decisions from our judicial system, cases like Roe v. Wade (abortion) and Dred Scott v. Sandford (slavery) come to mind.  Within our group of right of way professionals, we obviously think Kelo v. City of New London is a huge deal, as it allows for the use of eminent domain for purely economic purposes.  But does it rank up there with the others?  It does, according to US Supreme Court Justice Scalia.

According to an ABA Journal article, Justice Scalia was recently speaking to a group of students at Chicago-Kent School of Law, and he predicted Kelo will be overturned:  "I do not think that the Kelo opinion is long for this world," Scalia said.  He went on to compare Kelo to the other cases mentioned above, noting it ranks among the top cases in which the court made a "mistake of political judgment."  (Justice Scalia is not alone -- see another recent apology for the decision by Justice Palmer.)

While Justice Scalia notes that the US Supreme Court has made mistakes of law, 

it has made very few mistakes of political judgment, of estimating how far ... it could stretch beyond the text of the Constitution without provoking overwhelming public criticism and resistance.  Dred Scott was one mistake of that sort.  Roe v. Wade was another. ...  And Kelo, I think, was a third.

On a less serious note, you can also read the Chicago-Sun Times article on the subject, where Justice Scalia also answers questions such as whether he prefers deep dish or thin crust pizza.  (He was in Chicago; how do you think he responded?)

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You may recall that last year in Ridgewater Associates LLC v. Dublin San Ramon Services District, the California Court of Appeal held that a subsequent purchaser cannot recover for inverse condemnation where (1) it knowingly purchases property impacted by a government taking, and (2) the purchase price reflects the property's condition in light of the government impacts.  See Buyer Beware: Improper Sale Documentation Results in Waiver of Inverse Condemnation Claim by Brad Kuhn and Rick Rayl.  While the decision was originally published at 184 Cal.App.4th 629, the California Supreme Court subsequently ordered the opinion depublished when it denied a petition for review.  On September 22, 2011, in an unpublished decision, the California Court of Appeal not only reaffirmed the Ridgewater holding, but took it one step further.  See Gurrola v. City of Los Angeles (Sept. 22, 2011) Case No. B229756. 

In Ridgewater, the Court of Appeal found that the purchase price of the property at issue was reduced as a direct result of the property's allegedly degraded condition.  This finding was supported by affirmative record evidence.  In Gurrola, however, the Court simply presumed that because Gurrola knew of the damage allegedly caused by the City's conduct prior to purchasing the property, "the amount Gurrola paid for the lots . . . reflected his opinion of the value of the land in its degraded condition."  Thus, in Gurrola , the Court of Appeal appears to have refined the Ridgewater test to a single factor:  did the subsequent purchaser knowingly purchase property potentially impacted by a government taking? 

In Gurrola, the answer to this single question was clearly yes.  As a result, the Court held that Gurrola did not have standing to pursue an inverse condemnation claim, and granted the City's motion for judgment on the pleadings.    

While the Gurrola decision is unpublished, and therefore generally not citable as precedent, it is a stark reminder of the potential pitfalls awaiting an unwary buyer.  For a simple way to avoid this problem, see the E-Alert authored by Brad Kuhn and Rick Rayl.  

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All eminent domain attorneys know the importance of getting the Final Order of Condemnation right.  After all, it's the document that gets recorded, effecting the transfer of title to the agency.  But sometimes mistakes occur, and when they do, the condemning agency typically has a remedy. 

In DFP, LTD v. Sacramento Regional County Sanitation District, an unpublished opinion issued earlier this week, the agency requested a nunc pro tunc order revising the final order to correct a "scrivener's error."  The error:  the recorded final order stated that the agency acquired an easement, when what the agency actually condemned was a fee.  (For those who didn't study Latin in high school, nunc pro tunc is just a fancy way of saying that the order is corrected retroactively.)

So far, so good.  The court signed the order, and the corrected final order was recorded.  There was just one, small problem.  Between the date the "easement" final order was recorded and the date the "fee" final order was recorded, someone bought the property.

The result was a quiet title action by the buyer, arguing that the agency possessed only the easement interest reflected on title at the time the sale occurred.  The buyer claimed to be a bona fide purchaser for value, not bound by the subsequent final order.

We don't yet know the final outcome of this story; the current opinion merely reverses a trial court order sustaining a demurrer, but regardless, if this one actually plays out, the lesson is easy to see:  take extra care in getting that final order right the first time.

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A new published California court of appeal decision may be important for private utility companies with respect to the valuation of their possessory interests in public rights-of-way for property tax assessment purposes.  The case, Charter Communications Properties v. County of San Luis Obispo, provides that when assessing the fair market value of a utility's possessory interest, the County tax assessor will likely be able to disregard the utility's agreed-upon remaining term of possession and instead assume a much longer anticipated term of possession to match reality.  This, in turn, means private utility companies should expect to see higher property tax assessments.  

Some background:  Under article 13, section 1 of the California Constitution, property is generally assessed as a percentage of its fair market value.  Private possessory uses of public property may also be assessed for property tax purposes.  With respect to private utilities in public rights-of-way, such possessory rights are typically valued by capitalizing the annual rent.  The annual rent is based on the franchise fee paid in exchange for the utility's possessory interest for (1) the remaining term or (2) the anticipated term.

The term of possession therefore becomes very important for valuation purposes, as the longer the term of possession, the greater the present value.  In the past, the assessor typically relied on the franchise agreement between the public entity and the private utility company in determining the remaining term.  As terms came closer to expiration, private utility companies were taxed less and less.  

The Charter Decision:  In Charter, the private utility company had between four and eight years remaining on its franchise agreements with the County for the placement of its television cables in public rights-of-way.  Instead of using this remaining term for valuation purposes, the County assessor instead valued the private utility's possessory interest by assuming a much longer anticipated term of possession (15 years).  

Charter challenged the assessor's valuation methodology, as it resulted in over half-a-million dollars of increased assessment.  Charter claimed there was no basis to deviate from the agreed-upon remaining term and assume a longer anticipated term of possession.  The trial court held that the assessor appropriately relied on an extended anticipated term as opposed to the parties' stated remaining term, concluding that the evidence demonstrated that these types of franchise agreements are routinely renewed indefinitely, and in fact Charter expected its cables to remain in-place indefinitely.

The Court of Appeal affirmed, also concluding it was appropriate for the County assessor to assume a much longer anticipated term for valuation purposes.  Despite the stated length remaining for its franchise term, there was no question that the utility provider would have its franchise renewed and the utilities would remain in place well into the future.  

Private utility companies will now need to seriously analyze their property tax bills and determine the valuation methodology employed by the assessor.  If the assessor deviated from the stated remaining franchise term, the utility provider will need to decide whether the deviation is supported.

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We'll have more soon, but I wanted to report quickly that the California Supreme Court announced today that will assert jurisdiction over the CRA's lawsuit involving the constitutionality of AB 26 X1 and AB 27 X1, the bills involving the dismantling of California's redevelopment agencies. 

The Court also announced a partial stay of the legislation while it considers the case.  A news release by the Judicial Council of California describes the scope of the Court's stay as follows:

The court allowed the first statute [the one that eliminates redevelopment agencies] to remain in effect insofar as it precludes existing redevelopment agencies from incurring new indebtedness, transferring assets, acquiring real property, entering into new contracts or modifying existing contracts, entering into new partnerships, adopting or amending redevelopment plans, etc., but it stayed enforcement of both statutes in all other respects.

The Court also indicated that it intends to make a final decision by mid-January 2012. 

We will have a more detailed analysis in the next day or two.  

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On July 29, 2011, the California Court of Appeal issued an unpublished decision confirming that when condemned property is subject to a roadway easement, and the property owner fails to demonstrate that there is "something special attaching to it," regardless of how the property is ordinarily bought or sold, the landowner is only entitled to nominal value.

In People ex rel. Department of Transportation v. Bakker, No. F060030, the California Department of Transportation (Department) condemned 18.13 acres of land belonging to the Bakkers, 4.4 acres of which were subject to a roadway easement.  After the jury awarded the Bakkers $15,500 per acre, including the 4.4 acres subject to a roadway easement, the trial court entered a directed verdict in favor of the Department, holding that the Bakkers were only entitled to nominal value for the 4.4 acres as a matter of law, and reducing the $68,200 awarded for the 4.4 acres to $200.  The trial court also denied the Bakkers' request for litigation expenses.  

On appeal, the Bakkers argued that they presented proof of special value by way of their appraiser, who also happened to have a broker's license, as he testified that property in the area, regardless of whether it is subject to a roadway easement, is bought and sold based on the gross acreage.  The Court of Appeal first explained, quoting People ex rel. Dept. P.W. v. Schultz Co. (1954) 123 Cal.App.2d 925, that in California, absent "proof of some special value" condemned land subject to a surface easement is only entitled to nominal value.  Then, expressly rejecting the Bakkers' argument, the Court stated that  [i]f the fact that a parcel is usually sold based on gross acreage proved that the portion of the property subject to a roadway easement has special value, the rule set forth in Schultz would never apply."  Accordingly, the Court of Appeal affirmed the trial court's approximately 99.7% reduction in compensation for the 4.4 acres of property. 

As for the issue of litigation expenses, the Court of Appeal found that even though the Department's final offer was only 83% of the revised jury verdict, because the trial court applied established guidelines it did not abuse its discretion in determining that the offer was reasonable. 

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As originally reported by Robert Thomas at inversecondemnation.com, a petition for certiorari was filed asking the U.S. Supreme Court to address "[w]hat category of takings are subject to heightened judicial scrutiny, and when is the risk of undetected favoritism so acute that an exercise of eminent domain can be presumed invalid?"  While Justice Kennedy brought this issue to the national stage when he raised the possibility of such conduct in a recent concurrence, as of today, and likely tomorrow, the question remains unanswered. 

In Kelo v. City of New London, 545 U.S. 469 (2005), while the U.S. Supreme Court rejected the notion that the promotion of economic development must be treated as per se invalid, or even presumptively invalid, the Court reiterated that a public agency will not "be allowed to take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit."  Justice Kennedy elaborated on this concept in his concurrence, stating that "[t]here may be private transfers in which the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebuttable or otherwise) of invalidity is warranted under the Public Use Clause." 

Justice Kennedy, however, did not provide any specific guidance as to when such a presumption is appropriate, concluding that since the taking by City of New London "occurred in the context of a comprehensive development plan meant to address a serious city wide depression, and the projected economic benefits of the project cannot be characterized as de minimis," it was not the proper "occasion for conjecture as to what sort of cases might justify a more demanding standard."

The current petition seeks to have the Court fill that gap, using the Hawaii Supreme Court's decision in County of Hawaii v. C&J Coupe Family Ltd. P'ship, 242 P.3d 1136 (Haw. 2010), as the springboard.  Generally, the case goes like this:

• In exchange for a change of zoning necessary to construct a 1500-plus unit gated development, the developer agreed to construct a bypass highway.
• Shortly thereafter, the County of Hawaii and the developer executed a development agreement providing that the County would use its power of eminent domain to acquire any property along the proposed route for the bypass highway if the developer was otherwise unable to purchase the property.
• Except for the property owned by C&J Coupe Family Limited Partnership (Coupe), the developer was able to obtain all of the property along the route.
• Pursuant to the terms of the development agreement, the County of Hawaii adopted a resolution of necessity and filed an eminent domain action to condemn the Coupe property.  The development agreement was expressly referenced in the resolution of necessity.
• During the pendency of the first condemnation action, the County of Hawaii adopted a second resolution of necessity and filed a second eminent domain action to condemn essentially the same Coupe property.  This time, the resolution of necessity did not make any reference to the development agreement.  
• The court held that the first condemnation was invalid, because the County had unlawfully delegated its sovereign power of condemnation to the developer by way of the development agreement.  The court, however, eventually upheld the second condemnation action, concluding that Coupe had failed to demonstrate by clear and palpable evidence that the public use asserted was a pretext.  In reaching this holding, the court declined to adopt a presumption of invalidity or saddle the County with the burden of proving the validity of its stated public use.  

While the case presents compelling facts, particularly in light of Justice Kennedy's concurrence, the chance of U.S. Supreme Court review remains slim. 

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When dealing with regulatory takings claims, we've covered in the past the maze of procedural landmines that await a property owner.  We've once gone so far as to describe it as resembling "Alice's trip through Wonderland, with the parties falling in and out of state and then federal court (instead of a rabbit hole) based on procedural and substantive rules that often seem as logical as the Mad Hatter's recitals at the Tea Party."  Could one of those major obstacles disappear, allowing land owners a more direct shot at a regulatory takings claim in federal court?  The US Supreme Court could decide this issue if it takes up a new case where the property owners have filed a petition for review.  

While the chances of US Supreme Court review are slim, there's a fascinating new case that has made its way up the judicial ladder that deals specifically with the silly and confusing Williamson County rule that bounces a property owner around our legal system.  Our friend Robert Thomas has a detailed post on his blog, InverseCondemnation.com, that we highly recommend following.  

Generally, the case -- Alto El Dorado Partnership v. County of Santa Fe 634 F.3d 1170 (10th Cir. 2011) -- goes like this:

• The property owner sought to subdivide its property to build residential units.  However, a County ordinance requires subdividing land owners to build "affordable housing" units to be sold to County-approved buyers.  
• The property owner challenged the "affordable housing" obligation in federal court, claiming it amounts to an unconstitutional permit condition in violation of Nollan v. California Coastal Commission 483 U.S. 825 (1987).  
• The court held that under Williamson County, the owner's claim was unripe and had to be litigated in state court, and regardless, the owner could not challenge the affordable housing condition under Nollan because (1) it is a legislative (as opposed to administrative) requirement and (2) it does not take real property, but merely restricts the use of land.

In the property owner's petition for review, the US Supreme Court is being asked to decide whether Williamson County's state-procedures rule should be overturned given that it effectively bars property owners from asserting federal takings claims.  

If the Supreme Court takes up the case, it will be fascinating to follow.  We'll keep you posted.

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We've completed our analysis of the Galardi case and have some additional thoughts about the decision and its potential larger impact.

The real debate we've been having internally is whether Galardi can be read as signaling a change in the law concerning broadly worded waivers in condemnation clauses.  Many commercial leases contain broad waivers, skewed towards landowners.  Provisions such as "in the event of condemnation, tenant waives all rights to compensation" are not uncommon.  

Until now, even the broadest wavier imaginable has not affected the tenant's right to seek lost goodwill.  Though finding any actual law standing for this proposition is a challenge, to say the least, there seems to be no real dispute in the eminent domain community on this point.  (If you really want a case cite, the closest we can come up with is Chhour v. Community Redevelopment Agency (1996) 46 Cal.App.4th 273, in which a tenant was permitted to pursue a goodwill claim despite the existence of a broad, general waiver.) 

Good reason exists for treating goodwill separate from real estate claims subject to a broad waiver.  Goodwill is a statutory claim that is unique to the business, and has nothing to do with the bundle of sticks that make up the real estate claims.  Moreover, only the owner of a business operating on the property can make a goodwill claim, so in theory, the landlord has no standing to seek lost goodwill.  Thus, while a general waiver can fairly be said to encompass all real estate claims (including the tenant's bonus value), the same cannot be said for goodwill.  

Galardi may change that.  At the very least, it creates a vehicle to argue that a general wavier of the right to compensation effects a waiver of tenant's right to goodwill.  And, since only the owner of a business operating on the property can recover for lost goodwill, courts may also construe such a wavier as an assignment of the tenant's goodwill claim to the landlord, allowing the landlord to sue in the tenant's name, rather than its own.  (Not inferring an assignment would potentially result in a huge windfall to the condemning agency, which would otherwise escape all liability for business goodwill.)  

Until we see a case in which a landlord argues - over the tenant's objection - that it has acquired the tenant's goodwill claim pursuant to a general waiver, it's not clear whether courts will read Galardi so broadly, or whether they will restrict it to franchisee-franchisor situations and/or cases where the lease wavier is coupled with a subsequent, express assignment of the claim (as occurred in Galardi).  

For more, see our E-Alert, Whose Business Goodwill is it? 

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When a business subject to a franchise agreement is condemned, questions often arise as to the allocation of proceeds between the franchisor and franchisee.  When the question involves payment for lost business goodwill, the courts have placed strict limits on the franchisor's ability to recover. 

In particular, courts have long held that a franchisor cannot make a claim for lost business goodwill because the franchisor fails one of the key entitlement prongs:  the franchisor does not operate a business on the property.  (See Redevelopment Agency v. International House of Pancakes, Inc. (1992) 9 Cal.App.4th 1343.) 

In an opinion issued this week, Galardi Group Franchise & Leasing, LLC v. City of El Cajon (June 7, 2011, Case No. D056737), the court focused on two purported twists to the longstanding IHOP rule:

1. The Weinershnitzel franchisor structured the franchise agreement to make it appear that the franchisor had an ownership interest in the business, going so far as (a) to include a condemnation provision with a blanket waiver by the franchisee of any right to recover for business goodwill, and (b) to limit the franchisee to a month-to-month rental of the property, while the franchisor retained ownership of everything, down to the fixtures and equipment.
2. After the condemnation commenced and the restaurant was closed, the franchisee expressly assigned its right to recover lost business goodwill to the franchisor.

The court was not swayed by the franchisor's creative structuring, applying the IHOP rule to bar the franchisor from making a business goodwill claim in its own right.  Despite the lengths the franchisor went to, it still failed to meet the test of operating a business on the property.

With respect to the assignment, the trial court rejected that claim as well, concluding that the franchisee's waiver of its right to recover lost goodwill in the franchise agreement meant that the franchisee had no claim left to assign once the inverse condemnation action took place.

The Court of Appeal disagreed, concluding that the parties' intent to assign the goodwill claim to the franchisor appeared both in the franchise agreement and in the specific assignment once the inverse condemnation action was commenced.  The Galardi court found no reason the franchisee could not assign its goodwill claim, and it held that the franchisor could pursue the claim, standing in the franchisee's shoes. 

We'll have more to say about this opinion and the impact it may have on future cases, but for now, we just wanted to get a quick summary out there.  In the meantime, if you must know more about the case immediately, take a look at Robert Thomas' blog post, Who "Owns" the Weinershnitzel?

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California eminent domain law generally provides that a government agency's impairment of a property's access is not compensable unless the impairment qualifies as "substantial".  Dozens of cases have addressed access impairment claims raised by property and business owners both in the traditional eminent domain context and through inverse condemnation actions, and while there are some general guidelines that can be established, many times the determination of whether an impairment qualifies as "substantial" will depend on the particular facts of the case.

Take for example a recent district court decision in Wardany v. City of San Jacinto (May 27, 2011).  The property and business owner operated a general convenience store -- "One Stop Market" -- on Ramona Boulevard in the City of San Jacinto.  In order to improve safety, the City decided to place a mile-long center median down Ramona Boulevard, which eliminated the ability of vehicles to make left-turns in and out of the One Stop Market property.  Vehicles traveling north could still make right turns in and out, but vehicles traveling south were now required to go up to the next break in the median and turn around or take side streets.  The owner claimed that the center median diverted business and One Stop Market suffered a 55% decline in sales; an inverse condemnation action followed.

Before reading the Court's analysis and holding, my insticts told me this type of access impairment would not be compensable, and the owner would be out of luck.  As they say, you should always trust your instincts.  (Although I'm quite confident I would not have told you if my instincts were wrong.)

The Court struck down the owner's regulatory takings claim, concluding that the owner still had an economically viable use of the property.  The Court also rejected the owner's access impairment claim, finding that the "evidence fails to establish that ingress or egress from Plaintiff's property has been completely obstructed," and therefore, there was no "cognizable taking claim under either the Fifth Amendment or the California Constitution."  

Some property and business owners may not necessarily agree with the Wardany Court's line of reasoning.  But courts have traditionally required a high -- or "substantial" -- level of impairment before finding liability with the reasoning that public infrastructure projects and important street improvements would not get accomplished if government agencies were required to pay property and business owners every time a project resulted in a decline in a property's value or a business' sales.  It's been said that this is the risk we take living in a modern society. 

UPDATE:  see our e-alert for a more detailed report on the Wardany case.

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We've been following the Ninth Circuit Guggenheim case for more than a year.  That Court's change in its holding between the initial decision by a three-judge panel and the subsequent en banc decision, coupled with the considerable attention the decision received, led many to think the case was ripe for Supreme Court review. 

Today, we learned that the Supreme Court denied the owner's Petition for Writ of Certiorari, meaning the en banc Court's decision will stand.  (As a reminder, that opinion held that the City of Goleta's rent control ordinance did not constitute a taking, despite the fact that the ordinance transferred the vast majority of the mobile home park's value from the park owners to the tenants.)

For those looking for more insights into the Court's reasoning in denying the cert petition, you'll have to try to read the tea leaves of a summary order, "Certiorari Denied," that lists about 200 cases, of which Guggenheim is the 18th.  Most, including Guggenheim, contain no further information.

For those who think this is a shocking result, remember that the sheer number of people seeking Supreme Court review makes the odds of success quite low, even for significant cases.  As I forecast back in February, even if one viewed this case as having a "great" chance at being reviewed, the odds were still likely only around 10%.  In the end, the Guggenheims will have to suffer with the other 200-odd parties whose hopes of a victory in the Supreme Court were dashed in summary fashion. 

In other Supreme Court news, I'm happy to report that today's order also contained information concerning rulings on various attorney disciplinary proceedings, and of the 11 attorneys ordered disbarred from the Supreme Court, I didn't recognize a single name. 

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There's an odd story unfolding in Mendocino County's Brooktrails Township.  It dates back to when Lake Emily was originally built in 1972, where its development apparently resulted in the partial taking of a number of properties.  But the township never paid for the acquisitions.  It is unclear how or why the owners let this slide.  (My first thought was perhaps no one noticed; but the takings were rather large -- one owner alone lost 1,300 square feet of property.)

Fast forward to more than thirty years later.  In 2006, the township decided to raise Lake Emily several feet, which would further inundate the previously impacted properties.  This time around, the township decided to pay the owners for the newly inundated portion, and also to pay the current fair market value for the past "take."  Seems like a pretty nice act on the part of the township given: (1) it agreed to pay current values for the past take, as opposed to the property's value in 1972 when the original take occurred, and (2) the owner's past claims were likely barred by the statute of limitations.  So how did this play out?

According to a Willits News article, Roseman case in a nutshell, the township negotiated and reached agreements with all the property owners.  As it should, given its generous offer to pay for the past take.  The township apparently filed "friendly" eminent actions and deposited the agreed-upon funds with the State.  So far, so good.  But things took a turn for the worse.  In 2008, one of the owners, the Rosemans, noticed the township's employees were chopping down trees outside the acquisition area.

The "friendly" eminent domain action became not so friendly.  The condemnation action became heated, and the Rosemans' previously agreed upon $27,700 compensation was off the table.  The case was tried before a jury this year, and the jury found the Rosemans were entitled to $115,000 as just compensation for the taking, plus an additional $150,000 as mitigation/cost to cure damages resulting from the needed installation of a retaining wall around the Rosemans' residence.  The township also was hit with paying the Rosemans' attorneys' fees and expert witness costs (which apparently exceed $200,000).  

In all, the township may be on the hook for nearly half-a-million-dollars -- just a wee bit higher than the originally agreed upon $27,700.  The township may appeal, but this serves as an important reminder of what can happen when public agencies exceed the scope of their take.  Eminent domain is already a contentious issue, and when an agency oversteps its bounds, bad things can happen.

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I read a really interesting blog post by Robert Thomas, 10th Cir: Landowner Not "Prevailing Party" Even Though They "Won $3.8 Million -- Much More Than The Government Ever Offered Them".  It describes a recent 10th Circuit decision that denied the property owner an attorneys' fees award where (1) the property was valued at trial at $3.8 million and (2) the government's offer was a mere $186,500.  What caught my attention was the mechanism by which the federal courts award fees under the Equal Access to Justice Act (EAJA), as compared to the fee-shifting rules in California. 

Under the EAJA, the owner is declared the "prevailing party" entitled to a fee award only where the final result is closer to the highest valuation opinion the owner presented at trial than it is to the highest valuation opinion the government presented at trial.  Thus, where the owner originally argued for a value of more than $30 million, the $3.8 million final award was far closer to the government's $186,500 number, meaning the owner received no fee award.  Simple math. 

How would this case have played out in California?  The result in California is a bit tricky to predict.  The value to which the owner's appraiser opined at trial has no bearing on whether the owner can recover fees.  Rather, fee awards in California depend on a comparison of the government's "final offer of compensation" against the owner's "final demand for compensation," exchanged shortly before trial. 

Using those figures, California courts must determine whether, in light of the adjudicated value, the government's final offer was unreasonable, while the owner's final demand was reasonable.  If the government was unreasonable and the owner was reasonable, the owner is entitled to fees.  Otherwise, no fee shifting occurs.  In making this determination, courts look at three factors:

1. The amount of difference between the demand/offer and the compensation awarded;
2. The percentage of difference between the demand/offer and the award; and
3. The good faith, care and accuracy with which the demand/offer was calculated.

Looking at the facts of the 10th Circuit case, if the owner's final demand had been $30 million or more, it's pretty clear that a California court would not have awarded fees.  Indeed, the court likely would have viewed both the government's offer and the owner's demand as unreasonable.

In the actual case, the owner requested that the court adopt a $6.1 million valuation figure (a value established by an independent panel of appraisers appointed by the court to render an opinion of value).  If we view that as representing a hypothetical "final demand," does the result change? 

Hard to say.  Assuming we treat the $186,500 as the government's final offer, the final value of $3.8 million would lie somewhere in the middle:  $3.2 million above the government's offer and $2.3 million below the owner's demand.  On the numbers, I think it would be easy to conclude that the government's "offer" qualified as unreasonable; the value awarded was more than 20 times the "offer" amount. 

But would a demand $2.3 million above the adjudicated value qualify as "reasonable"?  To me, this is a close call, and the outcome would likely depend on the court's overall view of the parties' conduct.  The "demand" was pretty far off, both in terms of percentages and in terms of raw numbers.  The demand missed by more than $2 million and the was more than 50% higher than the final value. 

Most reported opinions on this subject focus on the government's reasonableness.  And while no bright line mathematical rule exists, in most cases, offers of less than 60% of the award are deemed unreasonable, offers of more than 85% of the award are deemed reasonable, and offers falling within 60-85% can go either way.   (A 1995 opinion, People v. Yuki, first established these guidelines.)

Applying this same construct to the demand, this might mean that for a $6.1 million demand, final awards of less than $3.7 million (60% of the demand) mean the demand qualifies as unreasonable, awards of more than $5.2 million (85% of the demand) mean the demand qualifies as reasonable, while awards between $3.7 and $5.2 would depend on other factors.  (Disclaimer:  I'm not aware of any reported opinion that actually applies the 60% / 85% thresholds in this manner to evaluate final demands.)

Were this the rule, the $6.1 million demand would fall, just barely, in the gray area in light of the $3.8 million award.  And were this what actually happened, my gut says that the court would probably find that the demand qualified as reasonable in light of how woefully inadequate the government's offer was.  But I could easily see a court ruling either way on this one.

So which approach is better?  I have to admit I'm intrigued by the federal approach, which prevents either side from presenting an exaggerated number at trial.  This would presumably make the fact-finder's role easier and would make it less likely that a wildly high - or low - result would occur.  But in the end, I think California has it right.  The goal is to prompt settlements, and using the settlement figures as the measuring sticks for determining fee awards makes the most sense, at least to me.   

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The U.S. Court of Appeals for the Federal Circuit recently issued an interesting opinion which addresses the question of whether or not a government agency's application of the Endangered Species Act can trigger a property owner's Fifth Amendment Takings Claim.

My colleague Ben Rubin has a more detailed post about the case, Klamath Irrigation District v. United States, on our firm's Endangered Species Law and Policy Blog.  More generally, the Klamath Irrigation District case analyzes whether the US Bureau of Reclamation's decision to reduce water delivery to farmers utilizing the Klamath River Basin in order to comply with the Endangered Species Act (ESA) can result in a taking of the farmers' water rights. 

The Bureau claimed it was required to reduce the water supply in order to avoid harming upstream threatened and endangered species, and if it did not undertake the reduction, it would face liability under the ESA.  The farmers, on the other hand, claimed that they had a compensable property interest in receiving the water, and the reduction in the water supply resulted in a taking.

While the case has a long procedural history, the bottom line is that the US Court of Appeals for the Federal Circuit at least acknowledged that (1) the Bureau could be liable for a taking even if it did so in order to comply with the ESA and (2) the farmers had a compensable property interest in receiving the water.  The case has currently been remanded to the district court with these concepts guiding the case going forward.

The case, while still left to be ultimately decided, is still a major victory for property rights advocates.  Nancie Marzulla, counsel for the Klamath water users, stated that "the government's decision not to deliver any water at all to the farmers in the Klamath Basin was devastating. We are extremely pleased that the Federal Circuit and Oregon Supreme Court have confirmed that these farmers have a property interest in water that they have put to beneficial use for over 100 years."

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The case involving a small boxing gym in National City, California, has garnered national media attention.  The owner filed suit challenging National City's redevelopment plan for, among other things, failing to follow California's post-Kelo rules on making blight determinations. 

We reported on the case last month in A More Personal View of the Redevelopment Fight from National City.  The trial ended a few weeks ago, and the parties have been anxiously waiting for a decision ever since.  Late yesterday, the court issued its decision, ruling in favor of plaintiffs.  According to a press release issued this morning by the Institute for Justice (the firm that represented the owner in the litigation) entitled Major California Property Rights Victory for Landowners in Eminent Domain Abuse Fight; National City Violated Federal Constitution and State Laws:

The Court struck down National City’s entire 692-property eminent domain zone in the first decision to apply the legal reforms that California enacted to counter the disastrous U.S. Supreme Court Kelo decision in 2005. This ruling, which found that National City lacked a legal basis for its blight declaration, reinforces vital protections for property owners across the state, and underscores why redevelopment agencies should be abolished.

The city's reaction to the decision is, not surprisingly, a bit different.  Although acknowledging that the court ruled against the city overall, Mayor Ron Morrison is quoted in the San Diego Union Tribune as identifying a key failure in the plaintiffs' victory:

The main thing they were trying to do was make it so cities can not use eminent domain for economic development. They failed on that. The judge threw that part out.

Obviously, this is a big decision, and property-rights advocates will trumpet its significance.  But for now, unless you live in National City, the decision's impact may not reach you.  Trial court decisions do not create legal precedents that can be relied upon in other, unrelated actions.  While it may well be that this decision will find its way to the Court of Appeal, unless and until the Court of Appeal issues a published decision on the issue, the decision does not actually change California law. 

That said, I'm sure other redevelopment agencies around the state will take note of what happened in National City; rest assured none of them want to be the target of the next lawsuit/national media campaign by the Institute for Justice. 

Note also that this is not the first court decision to strike down blight findings since California's post-Kelo reforms were enacted.  We reported last year on a case in which the court struck down the Glendora Redevelopment Agency's blight findings.  That decision, which was a published Court of Appeal decision, does create legal precedent. 

More information later if we get our hands on the court's actual ruling. 

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I wanted to provide a quick update on a couple of cases we've reported on earlier. 

The first case is the dispute between the City of Seal Beach and Bay City Partners over 10.7 acres of waterfront property.  The city wanted the property preserved for the public, while the owner wanted to use it as part of a new oceanfront development.  According to a March 29 article in the Orange County Register by Roxana Kopetman, Seal Beach and developer agree on waterfront property, the parties agreed this week to a settlement that will result in leaving about 70 percent of the property open to the public. 

In return, the city will pay the developer $2 million, far less than the amount the owner thought it was worth.  But the agreement may be a win-win if it opens the door to the owner's planned development of 48 homes on the remaining property.   

The second case is the ongoing court battle over National City's redevelopment plan and the youth boxing facility that could stand in its way.  In that case, the Institute for Justice is representing the boxing gym's owners, claiming that the city failed to meet the post-Kelo requirements for making blight findings when it extended its redevelopment plan.  The city, in turn, claims that it made proper blight findings.  And in response to the owner's claims that the lawsuit is all about stopping eminent domain abuse, the city argues that it has no plans to condemn the property.

Trial commenced March 14, and closing arguments took place last week.  The parties are now waiting for a ruling from Judge Steven R. Denton.  We'll let you know what happens when the judge issues his ruling.  (Meanwhile, of course, as the overall fate of redevelopment agencies in California hangs in the balance of the ongoing budget dispute, the potential importance of this decision is unclear.)  

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We've covered the Guggenheim v. City of Goleta regulatory takings case pretty exhaustively, most recently noting there is a pending petition for Supreme Court review.  While we wait for the fateful decision as to whether the Supreme Court will take up the Guggenheim case, the 9th Circuit Court of Appeals recently issued another mobilehome rent control regulatory takings decision in Colony Cove Properties v. City of Carson.  Like the 9th Circuit's en banc decision in Guggenheim, the park owner's regulatory takings claim was unsuccessful.

The owner in Colony Cove purchased the mobilehome park for $23 million in 2006, well after the implementation of the City of Carson's 1979 rent control ordinance.  However, the City amended the ordinance's "Guidelines" in 2006 subsequent to the owner's purchase.  The owner applied for a general rent increase of about $600 per space per month, and the City only approved an increase of $35.  To put the park owner's detriment into context, the owner claimed the ordinance resulted in a $30 million decrease in the property's value, and allowed the mobilehome owners to receive on average $118,000 for their $33,000 mobilehomes.

The owner filed suit in federal court, alleging that the City's rent control ordinance deprived the owner of the value of its property while allowing park residents to sell their mobilehomes at a premium (an argument similar to that put forth Guggenheims).  The owner made a facial and as applied challenge to the ordinance, claiming it violated the Fifth Amendment's Taking Clause.

As is the case with many regulatory takings challenges, the district court dismissed the facial takings claim as time-barred, and the as-applied takings claim as unripe.  The 9th Circuit agreed that the district court properly dismissed the case.

In particular, the owner's facial claim was time barred because the 2006 amendment to the ordinance's "Guidelines" was not a substantive amendment to the actual 1979 rent control ordinance, and therefore the owners were nearly 30 years late in challenging the ordinance enacted in 1979.  As to the as-applied claim, the owner failed to first file an inverse condemnation action in state court, which was a prerequisite to bringing the claim in federal court.

Colony Cove involves a slightly different set of circumstances than Guggenheim, but the end result (at least so far) is the same.  The owners' best option now may be to seek their own Supreme Court review and hope that this case, combined with Guggenheim, gets the Court's attention.  .

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The California Court of Appeal recently issued an interesting unpublished decision addressing a property owner's claim that a government entity's regulation of asbestos constituted a regulatory taking.  The owner's unsuccessful challenge presents a nice summary of what not to do when pursuing a regulatory takings claim, and just how difficult it is for an owner to succeed.

In Butte Equipment Rentals, Inc. v. California Air Resources Board, the property owner operated a rock mining and quarrying business.  The owner alleged that two regulations adopted by the California Air Resources Board (CARB) with respect to the quarrying and sale of rock containing asbestos resulted in the owner suffering a complete taking of its right to sell rock and of its right to engage in mining activities.

The trial court granted CARB's motion for summary judgment, holding that CARB was legitimately exercising its police power.  On Appeal, the Court agreed.  It explained the test is whether the "impact of a law or regulation as applied to a specific piece of property determines whether there has been a compensable taking."  In this case, despite the owner's claims to the contrary, the regulations only impaired one portion of the owner's rock quarrying business; the owner was still free to mine, quarry, and sell rock for many other unregulated purposes.  Thus, even with CARB's asbestos regulations in place, the owner was still able to make an economically viable use of its property.

The owner also failed to satisfy one of the key procedural hurdles necessary to bring a regulatory takings claim by not exhausting its administrative remedies and obtaining a final decision from CARB.  Finally, the Court explained that the owner could not successfully present a facial challenge to CARB's regulations unless it could show that the regulations inevitably posed a total and fatal conflict with the constitution.  In this case, the most the owner could do was show that a constitutional problem may arise in some future hypothetical situation.

Butte Equipment Rentals serves as a reminder of the uphill battle a property owner faces when bringing a regulatory takings challenge.  Navigating through the procedural landmines is one tough task on its own, but demonstrating a total taking under Penn Central and its progeny is many times insurmountable.

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Last week, we give a brief overview of the new published California Court of Appeal decision in City of Gardena v. Rikuo Corporation (Feb. 7, 2011).  For anyone interested in a more detailed explanation of the City of Gardena case, you can read our E-Alert, "Court Dismisses Appeal Arising From Stipulated Eminent Domain Judgment."

The case is probably worth a read for all of us in the right-of-way industry, as the decision serves as an important reminder for public agencies and property owners to carefully document eminent domain settlements, especially where additional actions are necessary in order to effectuate the settlement (such as curing remediation or undertaking additional construction activities).  If the parties enter into a stipulated judgment, they may inadvertently waive the right to appeal from any post-judgment orders the trial court gets wrong unless the settlement is properly implemented.

If you have any questions, feel free to let us know.

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The Clean Water Act requires states to identify rivers and creeks that fall below specified water quality standards.  Those water bodies are thereafter designated as "impaired" by the Environmental Protection Agency, and certain standards are imposed to limit pollution and runoff. 

If a river or creek's designation results in a nearby property suffering a decrease in value, does the property owner have standing to seek removal of the designation?  In Barnum Timber Co. v. United States Environmental Protection Agency, the Ninth Circuit Court of Appeals held that such a nearby owner suffering a diminution in property value did have standing. 

Barnum Timber Company, which was represented by the Pacific Legal Foundation, owns property and conducts timber-harvesting operations in the Redwood Creek watershed near Eureka, California.  Barnum argued that its property value decreased when the adjacent Redwood Creek was listed as "impaired."  In particular, Barnum claimed that the listing fed "the public's and the market's perception that Barnum's timber operations are restricted by the listing."  Barnum presented declarations from two Registered Professional Foresters, each explaining that when a listing occurs, the public perceives that the property will be subject to additional and onerous regulation, and the market reaction devalues the property. 

Based on the evidence presented, the Ninth Circuit agreed with the concept that "regulatory restrictions on one property that affect the uses to which a second property can be put [can] lower the second property's value."  The Court also agreed that a regulatory restriction need not be the "sole source of the [property's] devaluation."  The Ninth Circuit therefore held that Barnum -- based on the alleged property dimunition -- had standing to seek removal of the impaired listing.

While the Barnum Timber case strictly deals with the issue of standing, it will be interesting to see whether property owner advocates use the opinion to open up a new door of potential regulatory takings cases where a regulation on one property impacts the value of another property.  The Barnum Timber case may also arguably provide support for a regulatory takings claim where a property owner suffers a dimunition in value from a variety of factors. 

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Most eminent domain cases don't proceed to a full-blown jury trial.  Rather, most get settled somewhere along the way, and those settlements often come in the form of a stipulated judgment.  In most of those cases, nothing more happens.  The agency pays the judgment, obtains a final order of condemnation, and all parties move on with their lives.

But sometimes, the judgment itself isn't the end of the story.  And in City of Gardena v. Rikuo Corporation (Feb. 7, 2011), the parties still had to deal with ongoing environmental remediation issues long after their stipulated judgment was entered.  By stipulation, they left $750,000 on deposit with the Court and authorized the Court to retain jurisdiction over the use of those funds, with the idea being that the city could apply to the Court for withdrawals to cover the costs of the ongoing remediation.  Any money left over once the remediation was complete would go to the former owner. 

But something went wrong, and a dispute arose over the city's efforts to withdraw funds for the remediation.  When the Court allowed the withdrawal over the owner's objection, the owner appealed, and both parties went off to brief the issue on the merits before the Court of Appeal.

Then the Court of Appeal raised an interesting issue:  was the post-judgment order even appealable?  It requested supplemental briefing on the issue - and the city now jumped on the bandwagon, claiming the order was not appealable. 

The Court agreed.  It held that post-judgment orders are only appealable if the underlying judgment is itself appealable.  And, since the parties had stipulated to the judgment in order to settle the case, the judgment was not subject to appeal:

[T]he parties in this case consented to a final judgment that is not appealable as a matter of law.

While this situation does not come up that often, it provides a major cautionary tail for anyone who plans to stipulate to a judgment in condemnation where they know there may be post-judgment issues that could generate disputes. 

We'll have more on this case shortly, but for now, we just wanted to let people know it's out there.  And if you want to read more about it immediately, Robert Thomas has a post about it on his inversecondemnation.com blog, "Cal Ct App: No Appeal From Stipulated Condemnation Judgment."

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We thought it was over in 2009 when the Ninth Circuit held that the City of Goleta's rent control ordinance constituted a taking.

We thought it was over in late 2010 when an en banc Ninth Circuit panel ruled the other way, holding that the property owner failed to establish the "investment-backed expectations" necessary to establish a takings claim under Penn Central.

Now, we're not sure if it's ever going to be over.  Apparently, Dan Guggenheim has decided to seek review by the U.S. Supreme Court, so there may yet be more drama for the long-playing battle between the Guggenheims and the city over a mobile home rent control ordinance that the parties seem to agree has the effect of transferring the vast majority of the mobile home park's value to the tenants. 

So what happens now?  First, the Guggenheims must actually file their Petition for Writ of Certiorari, asking the Supreme Court to review the case.  Then, the Court decides whether it wants to review the case, and it's a serious uphill battle.  The Court receives thousands of petitions each year and it typically selects only about 100 of them for review.  In other words, based on the math alone, the Guggenheims aren't likely to see the inside of those hallowed halls. 

But some cases are more likely than others to pique the Justices' interest (four must agree that review is warranted), and controversial land use cases that have garnered media and practitioners' interests - and that have generated multiple, conflicting decisions by separate panels of a federal Circuit Court - probably have a greater likelihood of being chosen then most cases. 

Add to this that the decision comes out of the Ninth Circuit - which has a well-documented reputation for receiving far more than its share of decisions selected for review - and the Guggenheims probably have a decent shot (of course, even if these factors make the case five times more likely to be selected than a typical case, that still probably means only about a 10% chance of being reviewed).

And if the Supreme Court grants review?  Obviously each case is reviewed on its own merits, but according to an analysis of ten years' worth of Supreme Court review, the Ninth Circuit was reversed (or had its decision vacated) 80% of the time and affirmed 20% of time.  In other words, the Guggenheims' odds once they get there are a whole lot better than the odds of getting there in the first place.

We'll let you know what happens.

UPDATE:  February 4, 2011, 4:00 p.m.  Since publishing this post earlier today, I've gotten feedback from several sources, some from people involved in the case and some from other interested observers.  The one consistent comment is a belief that the chances of Supreme Court review are quite a bit higher than I forecast above.   While nobody is telling me they thinks it's a slam dunk, there is some optimism that this really does meet a lot of the criteria the Court looks for when selecting cases.  Stay tuned.

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The California Court of Appeal has issued a new published decision involving an unusual set of circumstances surrounding an eminent domain and inverse condemnation case.  In Cobb v. City of Stockton, the City filed an eminent domain action to acquire the owner's property; shortly thereafter, the City obtained prejudgment possession and constructed a public roadway on the property.  So far, seems typical.

Here's where things get unusual.  After nine years, the matter had not made its way to trial, and the court dismised the action for "lack of prosecution."  (I'm not entirely sure how the agency, the property owner, or the court could allow this to happen.)  The City promised to re-file the action, but apparently never did so.  The property owner turned around and filed an inverse condemnation action against the City. 

The owner's inverse action was initially dismissed on the grounds that it was time-barred (the City took the property over nine years ago, well outside the statute of limitations for an inverse condemnation claim).  On Appeal, the Court reversed, logically holding that the inverse claim did not accrue until the City's occupation of the property became wrongful, which only occurred after the eminent domain action was dismissed.

The Court explained why the trial court's decision to dismiss the inverse condemnation claim made no sense:

Taken to its logical conclusion, the trial court's ruling would mean that every time a condemning authority takes prejudgment possession of the subject property, the owner would have to file a protective inverse condemnation claim in the event the eminent domain action is later dismissed. Such action would then remain dormant while the eminent domain action ran its course.

Not surprisingly, this case involved an issue of first impression.  It is unlikely to come up very often, but it serves as a reminder that public agencies can be on the hook for inverse claims where eminent domain actions are not prosecuted in a timely fashion.  With the hook of the inverse claim, this likely means that the property owner can now recover attorneys' fees as well.

For a bit more on the decision, take a look at Robert Thomas' blog post, "Cal Ct App: Inverse Condemnation Statute Of Limitations For Physical Taking Begins When Invasion Becomes Wrongful."

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One of the cases we've been following the entire year is Guggenheim v. City of Goleta.  The case involves a challenge to the City of Goleta's rent control ordinance for mobile homes.  The owner claimed that the ordinance had the effect of transferring the vast majority (as much as 90 percent) of the property's value to the tenants, constituting a taking. 

Last September, the Ninth Circuit Court of Appeals reversed an earlier District Court decision, holding that Goleta's ordinance constituted a taking, and it remanded the case for a trial on the amount of compensation the owner should be awarded.  But in March, the Ninth Circuit spoke again, ordering an en banc hearing of the Guggenheim case.  In June, the en banc Court held arguments on the case, and practitioners have been waiting for a decision ever since. 

Yesterday, the Ninth Circuit issued its new Guggenheim opinion, reversing its earlier decision, and holding that Goleta's ordinance does not constitute a taking (the new decision actually replaces the earlier one, so the Court technically affirmed the original decision by the trial court). 

The case's significance lies not just in its outcome.  Merely by reaching the merits of the takings claim, the Ninth Circuit broke new ground.  Indeed, this was the first time the Ninth Circuit had ever reached the merits of a regulatory takings claim arising under the Penn Central Transportation
Co. v. New York City 438 U.S. 104 (1977) test.   How can the Court have avoided the merits of a seminal takings test for more than 30 years?

Penn Central claims have a huge procedural hurdle to overcome.  In order to meet ripeness requirements, the owner typically must exhaust all state court remedies.  But in doing so, the owner winds up with a state-court decision which bars the subsequent federal claim under principles of res judicata.   In other words, if the owner litigates to a final decision on the merits in state court, the federal claim is barred, and if the owner fails to litigate to a final decision on the merits in state court, the federal claim is not ripe.  (Sound like something out of a Joseph Heller novel?)

So the mere fact that the Ninth Circuit reached the merits is hugely significant.  And the en banc decision does not change that part of the earlier opinion, meaning the decision is still a "victory," at least of sorts, for property owners. 

But not for the Guggenheims themselves.  The Court concluded that the Guggenheims failed to establish the "investment-backed expectations" required to state a takings claim under Penn Central because the rent control ordinance preexisted the Guggenheims' purchase of the property.  As the Court explained:

Whatever unfairness to the mobile home park owner might have been imposed by rent control, it was imposed long ago, on someone earlier in the Guggenheims’ chain of title. The Guggenheims doubtless paid a lot less for the stream of income mostly blocked by the rent control law than they would have for an unblocked stream.

There is plenty more to the case that may be of interest, but those details go beyond the scope of a blog post.  The opinion and the dissent by Justices Bea, Kozinski, and Ikuta will undoubtedly provide considerable fodder for practitioners and commentators alike over the coming months.

For more on the case, see our article, 9th Circuit Reverses Course on Rent Control, published in the Los Angeles Daily Journal.   

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Both California and federal eminent domain laws set forth obligations on "public entities" or the "government."   When these specific terms are used, do the statutes also apply to public or private utility companies exercising the power of eminent domain?

One example is found in the Uniform Relocation Assistance and Real Property Acquisition Policies Act, which allows a landowner to seek reimbursement for costs and attorneys' fees when a condemnation action instituted by a "federal agency" is abandoned by the "United States."  (42 U.S.C. 4654.)  If a utility company institutes an eminent domain action pursuant to the authority of a federal agency, does the statute equally apply to the utility company?

According to a recent 9th Circuit opinion, the answer is apparently no.  In Transwestern Pipeline Company v. 17.19 Acres of Property, a private utility company obtained permission from the Federal Energy Regulatory Commission (FERC) to construct a natural gas pipeline across about 900 acres of property.  When one landowner aggressively fought the eminent domain action, the utility company changed the alignment to avoid that property and essentially abandoned the condemnation.  When the property owner sought recovery of its costs and attorneys' fees under the above Relocation Act statute, the court concluded that the private utility company was not bound  by the statute, and therefore the owner was not entitled to an award of costs and fees.

While the Transwestern Pipeline case only addresses one particular statute in the Relocation Act, the holding could arguably be applied more broadly.  For example, California Code of Civil Procedure section 1263.025 requires a "public entity" to offer to pay up to $5,000 for the property owner to obtain an independent appraisal.  A literal reading of the statute suggests this requirement does not apply to utilities exercising the power of eminent domain, but the issue has not been decided by the courts.  In the future, utility companies could point to the Transwestern Pipeline case in support of this interpretation in an effort to avoid paying the $5,000 appraisal reimbursement.

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Ever since the Supreme Court issued its infamous 2005 Kelo decision, people have been anxiously awaiting the Court's next opportunity to weigh in on the extent of the government's eminent domain authority and, in particular, the limits (if any) created by the "public use" requirement. 

One of the cases that has been watched closely involves efforts to expand Columbia University in New York.  In Tuck-It-Away, Inc. v. New York State Urban Development Corporation, dba Empire State Development Corporation, the New York State Urban Development Corporation sought to condemn property from Tuck-It-Away in order to transfer the property to Columbia.

As the case was framed by the property owner, the agency went beyond what even the broad Kelo decision allows.  In particular, in upholding eminent domain for purely economic motives, the Kelo court nonetheless explained that

[the government may not] take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit.

In particular, the Kelo Court warned that a "one-to-one transfer of property, executed outside the confines of an integrated development plan," would "raise a suspicion that a private purpose was afoot."  This is exactly what the property owner claimed was happening in Tuck-It-Away. 

New York's Appellate Division agreed, holding the taking unconstitutional.  However, the New York Court of Appeals reversed, holding that the taking did qualify as a public use.   Specifically, the Court held that the project would eliminate blight and would promote education, academic research and the expansion of knowledge, which the New York Court described as "pivotal government interests."

This set the framework for the Petition for Certiarori to the United States Supreme Court, which met last Friday to discuss the case.  Today, the Supreme Court issued an order denying the Petition.  This means that the Supreme Court will not hear the case on the merits and the decision of the New York Supreme Court upholding the taking will stand. 

Even though the Supreme Court refused to hear the case, property rights advocates will decry this as another Supreme Court attack on private property rights.   In the meantime, Columbia will presumably be able to move forward with its expansion plans. 

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I wanted to provide a quick update on some things about which we've reported over the past few months:

1.  Los Angeles Unified School District v. Casasola (2010) 187 Cal.App.4th 189

In Court Blurs Line Between Goodwill and Relocation Benefits, we reported on the Casasola decision, which expanded upon the earlier decision in Redevelopment Agency of the City of Emeryville v. Arvery Corporation (1992) 3 Cal.App.4th 1357 to hold that business owners cannot recover as lost business goodwill anything that falls within the scope of the Relocation Act, whether or not the losses are actually recoverable under the Relocation Act.  The opinion generated a lot of interest across California as practitioners waited to see what, if anything, the California Supreme Court would do (I heard many predictions that the Court would, at the very least, order the opnion depublished). 

Last month, the California Supreme Court denied both review of the Casasola case and the many requests to depublish the Court of Appeal's opinion.  Casasola remains the law.  Business owners facing relocation caused by eminent domain would be well advised to take note of the Casasola opinion.

2.  The Julia Morgan Building in Pasadena

In Pasadena May Use Eminent Domain for Historical Building, we reported on the City of Pasadena's efforts to acquire the former YWCA building designed by Julia Morgan.  A December 4 story in the Whittier Daily News, Pasadena takes control of former YWCA to preserve historic building, reports that the city has now taken possession of the building under an order for prejudgment possession.  The eminent domain action continues. 
 

3.  Petaluma Eminent Domain

In Highway 101 Interchange May Require Eminent Domain, we reported on potential eminent domain in the City of Petaluma to facilitate an interchange on Highway 101.  According to a Petaluma 360.com article, Petaluma OKs eminent domain for East Washington land, the City Council subsequently voted unanimously to proceed with the condemnations if negotiated solutions cannot be reached.   
 

4.  Glendale Sides With Developer

In Developer of Americana at Brand Shopping Center Requests Use of Eminent Domain for Expansion, we reported that developer Rick Caruso had asked the City of Glendale to consider using its power of eminent domain to acquire properties necessary to expand his Americana at Brand shopping center if he cannot acquire the properties on his own. 
 

According to a December 1 story in the Glendale News-Press, Council sides with Caruso, the City (actually, its redevelopment agency) agreed with Mr. Caruso, telling the owners they have 45 days to negotiate a price, come up with their own redevelopment plan, or face possible eminent domain. 
 

5.  And, Finally . . . More Space-Based Eminent Domain Games?

In Eminent Domain in Space?, we reported on a new card game titled Eminent Domain (the links between the game and eminent domain itself remained somewhat in question).  Just to show it isn't the first of its kind, a December 6 post by Martyn Daniel Pax Imperia 2 Eminent Domain Trailer by Vega reports on a 1997 computer game -- apparently, a "real time computer strategy game." 

And hey, nothing says fun like playing a computer game that follows an eminent domain case in real time (I think I may be missing something). 
 

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Earlier this year, we reported on the decision in Ridgewater Associates, Inc. v. Dublin San Ramon Services District.  There, the Court of Appeal rejected an inverse condemnation claim by a purchaser of a property that suffered water intrusion damage caused by an adjacent waste water treatment facility. 

The court held that the seller's failure to assign the inverse condemnation claim to the buyer, coupled with the fact that the buyer was "compensated" for any damages through payment of a reduced purchase price, left the buyer with no standing to sue in inverse condemnation. 

The buyer sought review by the California Supreme Court, and while the Court denied the Petition, it did issue an order depublishing the Ridgewater opinion.  Thus, while the buyer is still out of luck, the case no longer has any precedential value, meaning it cannot be cited by parties to any other lawsuit, except in very narrow circumstances.   

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In response to my earlier post on the Pombo decision, I was asked whether complying with the decision to avoid an award of litigation expenses would expose the agency to an illegal gift of public funds claim. 

This is an issue that arises with some frequency with public agencies, where people are understandably -- and appropriately -- sensitive to claims that they have misused taxpayer money.  In particular, people worry about making an "illegal gift of public funds."  This principle arises from the idea that taxpayer money must be used for public purposes; the government cannot simply give that money to a private individual. 

In the context of eminent domain, the concern is that agreeing to pay a huge premium over the agency's appraised value exposes the agency to an "illegal gift" claim.  Rest assured, this is only a remote possibility, if that.   Indeed, I am not aware of any California court ever concluding that an eminent domain settlement constitutes an illegal gift. 

As we discuss in more detail in When (if Ever) Does a Payment Become an Illegal Gift of Public Funds? , the government is free to take into account both defense costs and litigation risk in evaluating a possible settlement.  As long as the agency can document a legitimate public purpose behind paying more than its appraised value, no illegal gift occurs. 

Agencies have enough things to worry about in evaluating whether a particular settlement makes sense, especially in cases where a large gap exists between the parties appraisals -- but a "gift of public funds" is not one of them. 

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In California eminent domain cases (this is an area in which the law varies dramatically from state to state), the property / business owner is entitled to an award of litigation expenses (including attorneys' fees) if (1) it makes a reasonable final demand for compensation and (2) the agency makes an unreasonable final offer of compensation.  (See Code Civ. Proc. § 1250.410.)

How one analyzes "reasonableness" once the jury issues its verdict has been the subject of a number of court opinions.  Tracy Joint Unified School Distract v. Pombo (Oct. 29, 2010) adds to that body of law. 

In Pombo, the appraisers were wildly apart in their opinions of value.  The agency's appraiser opined to a value of around $3 million, while the owner's appraiser opined to a value of around $12 million. 

When it came time to exchange the final offer and demand, the agency stuck to its guns, making an offer only $100,000 above its appraiser's conclusion.  The owner split the difference, making a demand of around $8 million. 

At trial, the jury also split the difference, coming in at almost exactly the number in the owner's final demand.  The owner sought an award of litigation expenses.  The trial court denied the motion, focusing on the standard, three-factor test:

1. The amount of the difference between the offer and the compensation awarded,
2. The percentage of the difference between the offer and the award, and
3. The good faith, care and accuracy in how the amount of the offer and amount of demand, respectively, were determined.

The first two factors were obvious:  no matter how one looked at it, the agency blew it and the owner nailed it.  The decision turned on the third factor, and there, the trial court sided with the agency.  It concluded that the appraisers' opinions were so disparate that it was impossible to know how the jury would view the case.  The court concluded that the agency had exercised sufficient "good faith, care and accuracy" to avoid a fee award.

The Court of Appeal reversed.  It distinguished the cases that had found against the agency on the first two factors but still rejected a fee motion on the grounds that those cases had in common something absent in Pombo:

[Here, t]here was no tricky legal issue or unusual circumstance that made the offer difficult to formulate. The jury was confronted with a straightforward conflict between two appraisers who advocated vastly different approaches to the appraisal process.

In the absence of a "tricky legal issue or unusual circumstance," the Court of Appeal had no difficulty concluding that a fee award was warranted:

[T]he monetary difference between the offer and the award was enormous, the property owners’ offer was extremely reasonable and the District made no effort to show good faith by tendering an offer that gave serious consideration to an adverse appraisal that was several times larger than that of its expert.

Hard to argue with the Court's analysis.  

For more on the Pombo case, see our E-Alert, New Eminent Domain Case Clarifies "Good Faith" Test for Determining Litigation Expenses.

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Business goodwill appears to be a hot topic for the California Court of Appeal, as it was the primary issue in the recent LAUSD v. Casasola opinion, and is again the focus of an unpublished decision that came down last week, People Ex Rel. Department of Transportation v. Ahn.

In Ahn, Caltrans condemned a shopping center where Ahn owned and operated a framing store and art gallery.  After Caltrans took possession, the owner transferred to a relocation site.  At trial, Caltrans' goodwill expert determined the business had $26,000 of goodwill in the "before condition," and no goodwill in the "after condition."  The owner's goodwill appraiser calculated the figures at $83,000 and $0; however, he also concluded the owner was entitled to $323,000 in additional compensation for mitigation expenses, consisting of loss of income, loss of inventory, labor, relocation expenses, cost of capital, and lease payments. 

1. A business owner should take great care before expending money on mitigation efforts, ensuring that the expenses do not exceed the amount of goodwill the business possesses, as expenses that exceed the initial goodwill value may not qualify as reasonable.  Of course, from a business owner's perspective, this "cap" may be impossible to ascertain at the time the mitigation is necessary, especially when the efforts take place early in the litigation and prior to having a full appraisal completed.
2. A business owner should take care to establish that items for which they seek to recover as lost goodwill do not fall within the scope of the Relocation Act.  Under Casasola, it is crucial for owners to take steps to ensure that any mitigation claim can be explained as something that does not fall within the Relocation Act.  This is especially problematic for costs to render a site suitable for a business, expenses which qualify as "reestablishment" costs, but which the Relocation Act caps at only $10,000.

The bottom line for any business being displaced by condemnation is that it should hire a qualified eminent domain lawyer early in the process -- and certainly before spending any significant money on a relocation. 

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For those who didn't get enough of littoral property rights, accretion, and avulsion in reading about this summer's Supreme Court decision in Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection, there is a new case making its way through the system. 

In Maunalua Bay Beach Ohana 28 v. State of Hawaii, the court analyzed a 2003 Hawaii law that had the effect of transferring ownership of property created by accretion to the state.   In a split decision, the Hawaii Court of Appeal held in 2009 that with respect to property that existed at the time the law went into effect, any transfer of ownership constituted a taking. 

However, with respect to any new property created through accretion after the law's enactment, the Court held that no taking would occur, because "any claims that Plaintiff may have to future accretions are purely speculative, and other courts have held that a riparian owner has no vested right to future accretions."

In June, the Hawaii Supreme Court declined to review the case, and the plaintiffs have now filed a Petition for Writ of Certiorari before the U.S. Supreme Court.   Whether the Supreme Court accepts the case remains to be seen, but as fellow eminent domain blogger Robert Thomas of Hawaii aptly notes, the case does have the potential to fill in some gaps left by the Florida beach case:

• Are future interests property, or can state legislatures confiscate them because they have not "vested?"
• If a state appellate court finds a statute constitutional only by changing long-standing state common law and makes a formerly private right public, is that a "judicial taking?"
• Are there some common law property interests that are so fundamental that a state court cannot alter them?

For more background on this interesting case, take a look at Mr. Thomas' September 8 post, Cert Petition In Hawaii Beach Takings Case: Is The Right To Accretion A "Property" Interest?

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We reported several months ago about the property owner impacted by the expansion of the Everglades National Park petitioning the US Supreme Court to determine how to treat the government's enactment of tougher zoning standards that decrease the value of property which the government may want to acquire in the future.  The issue presented was whether the government's actions must be the primary cause of the precondemnation depression of the property's market value, or whether there must only be a nexus between the government's actions and the depressed market value.

This is an interesting debate, and according to a recent blog post by the Cato Institute's Ilya Shapiro, the US Supreme Court declined to hear the case.  Shapiro was clearly disappointed, explaining:

[t]he case involved the federal government maneuvering to unjustly drive down property values before taking land for (legitimate) public use — in this case expanding the Everglades — thus greatly diminishing the compensation it was obligated to pay the owners."

I think most people will agree that if the government is taking steps to drive down the acquisition price of property it eventually seeks to acquire, and those government activities result in the property's losing value, such actions should be disregarded when valuing the property.  California's eminent domain law addresses exactly this issue, and courts routinely hold that in such circumstances, the property is to be valued without considering such "project-related impacts."  

The issue becomes tricky, however, when a property owner is trying to prove why the government undertook certain actions that resulted in the property's losing value.  Were the government's actions really in an effort to reduce the property's eventual acquisition price, part of the project for which the property is being taken, or for some other legitimate, but unrelated, purpose?  

I have seen government agencies attempt to avoid paying compensation at all by simply enacting tougher zoning standards on a property, or designating a property for potential conservation (see, for example, the Western Riverside County Regional Conservation Authority's conservation efforts), which actions essentially make it impossible for the owner to make a viable use of the property.  A nexus standard, as argued by the property owner in the Everglades case, would make proving compensable government impacts much easier.  As it now stands, however, there is no bright-line rule, at least in California, as to whether the "primary cause" or "nexus" test should apply in determining whether the government's actions should be disregarded in determining a property's fair market value. 

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In Los Angeles Unified School District v. Casasola (Aug. 5, 2010), the Court of Appeal examined the interrelationship between recovery of lost business goodwill pursuant to Code of Civil Procedure section 1263.510 and recovery of relocation expenses pursuant to Government Code section 7267 et seq. 

My colleague, Gale Conner, prepared a good summary of the Casasola case detailing the facts and the Court's reasoning.  The bottom line is that the Court held that items that might be recoverable under the Relocation Act cannot be included in a claim for loss of business goodwill. 

At first glance, this does not seem surprising.  Section 1263.510 contains an express limitation that a goodwill award not be duplicative of relocation benefits.  And nearly 20 years ago, the court in Redevelopment Agency of the City of Emerville v. Arvery Corporation (1992) 3 Cal.App.4th 1357 held that expenses that could be recovered under the Relocation Act must be excluded from an award of business goodwill. 

But the Casasola opinion expands these concepts, holding that even if the expenses cannot be recovered under the Relocation Act, they are nonetheless precluded under the goodwill statute if they are the types of things that might have been recoverable under the Relocation Act. 

In Casasola, for example, the business owner spent over $1 million on business reestablishment costs to prepare the relocation site.  Since the Relocation Act caps such costs at $10,000, the court held that anything above that amount was not compensable -- under either the Relocation Act or as business goodwill.

The Casasola court concluded that it could not second guess the Legislature's decision to place a $10,000 cap on reestablishment costs by allowing the claim to come in under the guise of the goodwill statute. 

In my mind, this conclusion misses the mark.  Yes, the Relocation Act and section 1263.410 both deal, very generally, with the same subject matter.  But the policies behind the two statutory schemes are quite different, and the court's failure to understand this difference led it down the wrong path. 

Relocation benefits are available to every displaced business, whether that business is profitable or not.  The policy is that a government taking should not force someone out of business, even if the business is not economically viable.  However, the Legislature understandably wanted to draw some lines in this respect, and it capped some of what may be recovered as a relocation expenses (including the $10,000 cap on reestablishment costs). 

Loss of business goodwill is a whole different animal.  Not every business possesses goodwill, and not every displacement causes a business to lose goodwill.  But where a business does possess goodwill, and where the owner can prove that a displacement causes a loss of that goodwill, section 1263.510 makes that loss recoverable.  

The Legislature also placed limits on goodwill recovery, including an express requirement that the business owner take reasonable steps to mitigate the loss of goodwill.   And the goodwill statute contains no $10,000 cap on what the owner must spend in an effort to preserve goodwill.   

All one needs to do is flip the numbers from Casasola to see the problem with the Court's conclusion.  Instead of spending $1,300,000 to preserve $126,000 (as happened there), imagine a business that must spend $126,000 in order to preserve $1,300,000 in goodwill.  If the only viable relocation site for this $1,300,000 business requires $126,000 in reestablishment costs, the business must either (1) shut its doors, or (2) spend the $126,000.  Under section 1263.510, the owner clearly cannot opt to close the doors, claiming a total loss of goodwill; the owner would have failed to take reasonable steps to mitigate.

Thus, the owner must spend the money or its goodwill claim will be barred.  But the Relocation Act makes any such reestablishment costs over $10,000 non-compensable as relocation expenses.  And the Casasola opinion now also makes those costs non-compensable as lost business goodwill. 

Yet, the owner had to incur those costs, and they unquestionably lower the business' value.  (A hypothetical buyer facing $126,000 in relocation costs would clearly pay less than a hypothetical buyer not facing such costs.) 

Moreover, such relocations often do not proceed with such bright lines.  If the owner spends $126,000 out of pocket to render the site suitable, it is presumably an ineligible "reestablishment cost" (now barred under Casasola).  But if the landlord pays those costs as a tenant improvement allowance, subsuming the costs within the tenant's new rent, any increased rental expense qualifies as a classic example of something that impacts goodwill.  (Indeed, the obligation to pay higher rent at the replacement site was a fundamental issue in the first California Supreme Court opinion to address business goodwill claims under section 1263.510, People v. Muller.)  

Should recoverability really come down to whether the tenant pays the costs up front or gets them included within its rent?

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The California Court of Appeal issued an interesting unpublished decision yesterday addressing a number of eminent domain issues, ranging from right to take challenges, entitlement to goodwill, severance damages, and jury instructions.  The case, City of San Luis Obispo v. Hanson, garnered enough attention that several third parties filed Amicus briefs with the Court.

By way of background, the City of San Luis Obispo decided to realign a road partly in order to accommodate a newly approved Costco development.  The realignment required right-of-way acquisition from a property on which the Rose Garden Inn operated.  After Costco was unable to reach an agreement with the property's owner on the acquisition price, the City adopted an appraisal (which found no severance damages) prepared by an appraiser hired by Costco, made an offer based on that appraisal, and passed a resolution of necessity to acquire the property by eminent domain. 

The property owner's right to take challenge was unsuccessful, and the case proceeded to trial on compensation.  The trial court found the Inn was not entitled to lost business goodwill, and the jury returned a verdict finding only about a quarter of the amount of severance damages claimed by the owner.

On appeal, the following issues were decided:

• The Road Realignment Met the "Public Necessity" Test:  While the road realignment was partly caused by Costco's project, and Costco would clearly benefit from the realignment, the project still met the "public necessity" test in that the road was needed by the public and the City had considered realignment regardless of the Costco development.
• The City's Adoption of Costco's Appraiser's Value Was Appropriate:  The Court held that the City could adopt the opinion of the appraiser retained by Costco (instead of hiring its own appraiser to value the take), as long as the appraiser was independent and impartial, and the City was not required to turn over the full appraisal on which its offer was based (it was only required to provide a copy of the summary basis of appraisal).
• The City was not Precommitted to Taking the Property by Eminent Domain:  Even though the Costco project was already approved (which required the realignment), the City did not abuse its discretion in adopting the resolution of necessity because it was not precommitted to the taking; the City substantially debated the issue and ultimately could have modified the realignment had it chosen to do so.
• The City's Severance Damages Determination Was Appropriate:  The City's appraiser determined the severance damages suffered solely based on the cost to cure method of valuation, and it assumed that the City would build driveways on the remainder of the property.  The Court held that the appraiser was not required to value the remainder of the property before and after the taking, and that a condemning agency may agree to do work on the owner's property to reduce compensable damages (as long as it does not contradict the resolution of necessity).
• The Trial Court Appropriately Declined to Allow Testimony on the Business' Alleged Lost Goodwill:  The business' goodwill appraiser determined that the business possessed goodwill equal to ten percent of total income, and that all the goodwill would be lost because of the uncertainty of the project.  The court appropriately excluded this testimony because it was already part of the appraiser's calculation of severance damages the business would suffer, and because the appraiser's ten percent figure was arbitrary and could not be supported.
• The Jury Instruction Stating the Costs of the Acquisition Would be Borne by the Public Was Appropriate:  The jury was not told that Costco would be paying the ultimate costs of the acquisition, but instead that the public must pay the compensation.  The Court held this instruction was appropriate, as the jury need not be made aware of Costco's role, and ultimately, Costco may be partly reimbursed by the City if Costco paid more than its fair share of the roadway (since other property owners benefiting from the project must pay a portion as well through assessments/development impact fees).

In all, this was an exciting case for an eminent domain attorney, as it dealt with many issues that rarely occur in one case.  Although the case is unpublished, and therefore cannot be cited as law, it is useful to see how at least one Court of Appeal panel views these issues.

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The City of Laguna Woods had been leasing the building it used for City Hall on El Toro Road for a number of years.  In 2005, the City -- apparently tired of leasing the space -- decided to acquire the property by using its power of eminent domain.  After proceeding to trial, a jury determined this week that the fair market value the City is required to pay for the building was $6.43 million -- $2.78 million more than the City had initially offered.

According to an Orange County Register article, "Laguna Woods must pay $6.4 million to take City Hall," the issues that resulted in the valuation spread between the building's owner, Raintree Realty, and the City, included (1) whether the property decreased in value as a result of the City's taking over the site, and (2) the value of a parking lot easement the City was acquiring as part of the eminent domain action.

Ultimately, the City will be forced to pay nearly $3 million more than it thought for for the property, plus interest.  The City has stated that the proceeds will come from its reserve funds.

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Last fall, we told you about a key rent control / takings decision, Guggenheim v. City of Goleta, in which the Ninth Circuit held that a rent control ordinance consituted a taking.  In March, we reported that the Ninth Circuit had ordered an en banc hearing of the Guggenheim case. 

Yesterday, the Court held the en banc hearing, and while it may be some time before the Court issues its opinion, the hearing itself may provide some good insights about what may happen (and what it may mean in the larger context of regulatory takings claims).  

Very generally speaking, the Court was critical of both sides' positions, attacking the property owner's attorney with respect to how long the ordinances had been in place and whether his clients knew about them when they purchased the mobile home park, only to then attack the City's attorney about the magnitude of the transfer of value the ordinance effected.  

Ultimately, based on what I understand to have been the tone of the arguments, the Court may avoid the merits and rule on a statute of limitations argument, but time will tell.  In the meantime, eminent domain attorney Robert Thomas followed the arguments closely and wrote a comprehensive, three-part summary on his inverse condemnation blog.  It makes for great reading:

• Guggenheim argument summary, part 1
• Guggenheim argument summary, part 2
• Guggenheim argument summary, part 3

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Another recent interesting court decision was somewhat lost in all the excitement last week over (1) the County of Los Angeles v. Glendora Redevelopment Project case striking down Glendora's redevelopment plan for inadequate blight findings and (2) the US Supreme Court decision in the Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection case rejecting a "judicial takings" claim. 

That recent decision was by the California Court of Appeal in City of San Jose v. Union Pacific Railroad, which came down a month ago, but received little attention as an unpublished decision on a narrow valuation issue.   But on June 11, the Court decided to publish its opinion, making it a whole lot more relevant to us eminent domain attorneys. 

In Union Pacific Railroad, the city sought to condemn an easement across a strip of land owned by the railroad company in order to widen an existing street.  The court held that the railroad was entitled to only nominal compensation for the portion of the property actually used for the rail line, explaining that a special rule applies in such circumstances pursuant to a 1925 California Supreme Court decision, City of Oakland v. Schenck (1925) 197 Cal. 456.

With some thoughtful analysis, it seems pretty clear that the Court got the decision right.  Under the facts as presented in the case, the easement did not diminish the value of the fee given its highest and best use as a rail line, meaning nominal value makes perfect sense -- and constitutes fair market value.  

But the Court apparently found the case to be more novel, concluding that it was bound to follow Schenck, but that the end result was a decision that did not afford the owner fair market value for the property taken.   In my opinion, the Court's analysis is wrong, even though its decision was right. 

For more details about the case, feel free to read my E-Alert, Court of Appeal Holds that a Condemnee is Not Always Entitled to Fair Market Value – But is That Really What the Court Means?
 

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The Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection case received considerable attention both before the Supreme Court agreed to hear it, and following the very colorful oral argument before the Court last December. 

At issue was whether Florida's efforts to restore some of its beaches through depositing 75-feet of sand seaward of the high-tide line rose to the level of a taking due to the restoration work's causing former beach-front owners' property lines to be moved further away from the ocean water.  

What made the case even more interesting was that by the time it got to the US Supreme Court, the issue was framed as whether the Florida Supreme Court's decision in favor of the state constituted a "judicial taking" of property -- a concept first recognized in a 1967 concurring opinion by former Justice Potter Stewart in Hughes v. Washington, in which he explained that “a sudden change in state law, unpredictable in terms of the relevant precedents” could qualify as a taking.  In the nearly half-century since Justice Stewart posited the concept of a "judicial taking," no court has upheld such a claim. 

Today's opinion is almost as complicated as the archaic law of littoral rights, accretion, and avulsion that underlies it, with four different groupings of Justices signing on to various portions of three different opinions. 

Let's start with the simple part:  the Court held unanimously that the Florida Supreme Court's decision did not constitute a taking.  The Court upheld the ruling in favor of the state, meaning those beach-front property owners whose property is now a bit further away from the ocean are out of luck.

From there, things get a bit murky.  Four Justices signed an opinion authored by Justice Scalia, recognizing the validity of judicial takings claims.  Specifically, the Justices concluded that if a court declares that what was once a recognized private property right no longer exists, such a decision qualifies as a taking. 

However, they believed that the Florida Supreme Court made no such announcement; rather, they concluded that the Florida court based its decision on existing legal principles.  (Note that the other Justices did not reject the idea of a judicial takings claim; they concluded that the Court did not need to reach the issue at all.)

Now, before you call this part of the opinion a big "who cares," in this case, four Justices did not constitute a minority of the panel.  In one of the case's odd twists, Justice Stevens recused himself as a result of his personal ownership of some Florida beach property.  Thus, this part of the opinion represents half the Court.  Still, under long-standing Supreme Court precedent, in the case of a 4-4 tie, the lower court's decision is upheld, and the opinion of the equally divided Court does not constitute binding precedent. 

Still, getting half the voting Justices to endorse the idea of a judicial takings claim is not insignificant, and property-rights advocates are already trumpeting this opinion as a "victory" for property owners.  For example, Timothy Sandefur of the Pacific Legal Foundation writes in a post entitled Judicial takings in Stop The Beach Renourishment:

Today’s decision gives hope to millions of American property owners whose right to their homes, businesses, and other property is often at the mercy of judges who are willing to totally rewrite the law to expand government at their expense.

It remains to be seen whether this decision will open a new floodgate of litigation against judges.  When and if the day finally comes where a court upholds a "judicial takings" claim, one more interesting issue remains:  who pays the judgment?  

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One of the big issues in eminent domain over the past five years has been the role of blight in justifying eminent domain for redevelopment purposes.  The seminal decision (that started all the ruckus) -- Kelo v. City of New London -- involved the use of eminent domain for redevelopment purposes where the city did not even pretend it was acting to eliminate blight.

Kelo had little direct impact on California's eminent domain law, because even before the Supreme Court issued its opinion in 2005, California's law allowed eminent domain for redevelopment purposes only upon a proper showing of blight.  In other words, California law did not allow eminent domain for pure economic development. 

Following Kelo, however, public scrutiny on eminent domain and, in particular, eminent domain for redevelopment purposes, created a nationwide backlash.  Most states enacted some form of eminent domain reform.  In California, the reforms included SB 1206, which contained some tweaks to the law involving blight findings.  More importantly, however, it seemed clear that courts would be way more likely to examine critically an agency's blight findings in the wake of the Kelo backlash. 

Yesterday, the Sixth District California Court of Appeal issued its decision in County of Los Angeles v. Glendora Redevelopment Project.  There, the county sued Glendora, claiming that Glendora had not made proper blight findings in enacting its redevelopment plan.  The opinion describes the trial court's ruling as follows:

“Glendora’s findings of blight are not supported by substantial evidence” in the administrative record. Furthermore, the court concluded, given the absence of blight, “Glendora is without eminent domain authority in this instance.”

The Court of Appeal examined the four requisites for a proper blight finding:

1. The area must be “predominantly urbanized";
2. The area must be “characterized by” one or more conditions of physical blight;
3. The area must be “characterized by” one or more conditions of economic blight; and
4. These “blighting conditions must predominate in such a way as to affect the utilization of the area, causing a physical and economic burden on the community.”

In a painstaking analysis, the Court held that Glendora had not met the "physical blight" test.  The court analyzed each of four statutory bases for a physical blight determination:  (1) unsafe or unhealthy buildings; (2) code violations; (3) dilapidation and deterioration; and/or (4) defective design or construction.  Finding no substantial evidence in the record of any of these conditions, the court invalidated the redevelopment plan. 

The significance of this opinion lies not just in the holding itself, but in the court's willingness to scrutinize the blight findings, rather than merely deferring to the agency's determination.  This is precisely the type of analysis that seemed likely in Kelo's wake.  Whether this is the start of a trend remains to be seen. 

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Earlier this week, Chino Hills voted 3-0 (with two members abstaining for conflict reasons) to appeal an earlier court ruling that the Public Utilities Commission has "exclusive jurisdiction with regard to the right-of-way property rights issue between the City and SCE regarding the Tehachapi Renewable Transmission Project route through Chino Hills."  

Southern California Edison's Tehachapi Renewable Transmission Project is a massive, $1.8 billion project designed, in large part, to connect wind farms in the Tehachapi area to the main electrical grid.  The project involves installation of approximately 175 miles of transmission lines, much of it through remote, undeveloped area and within existing Edison right-of-way. 

Some new right-of-way is required, and SCE has been acquiring that right-of-way through a combination of negotiated acquisitions and eminent domain actions. 

One segment, in particular, has been the subject of controversy.  Segment 8a focuses on replacing existing 220-kV lines in the Chino Hills area with new, larger 500-kV lines.  SCE describes this segment as follows:

Replacement of existing single-circuit, 220 kV line that runs from the existing Mesa Substation area to the Chino Substation area and existing double circuit, 220 kV line from Chino Substation to the existing Mira Loma Substation with a 32-mile double-circuit, 500 kV line.

Residents in Chino Hills don't like the plan, and the City has been fighting with SCE over possible alternatives.   The latest skirmish involves an April 2010 decision, in which the court ruled that it has no jurisdiction over SCE's route-selection process.  The ruling allows a December 2009 decision by the PUC approving the Project, including Segment 8a, to stand.   The PUC's order approving the project makes clear the high stakes involved:

It is imperative that California sites and constructs transmission more expeditiously, and this Decision is a step in the right direction. It is important that we invest in the critical infrastructure that will move us incrementally closer to our renewable energy goals while fostering green collar jobs opportunities.

Now, the City has decided to appeal the court's ruling, hoping to overturn the PUC's approval.  An April 15, 2010 Press Release provides more details and background on the City's arguments and the history of the dispute.

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A May 14 decision by the Ninth Circuit Court of Appeals clarifies the rules regarding when a plaintiff may sue for inverse condemnation in federal court.  In Adams Bros. Farming v. County of Santa Barbara No. 09-55315 (May 14, 2010), the Court rejected an inverse condemnation claim brought against the County, where the County allegedly effected a taking by improperly designating part of the owner's property as wetlands. 

The case involves a long, fairly tortured history that dates back to the late 1990's, when the County (apparently erroneously) designated about 95 acres of "Rancho Meadows" as a wetland.  In 2000, the owner sued the County in state court, claiming that the designation (1) constituted a taking, (2) violated the owner's due process rights, and (3) violated the Equal Protection Clause.  The court dismissed as unripe the takings claims, and after a trip up to the Court of Appeal, the case went to trial in 2004 on the due process and equal protection claims. 

The jury awarded the property owner $5.4 million, but the Court of Appeal reversed, holding that the owner lacked standing to pursue the due process and equal projection claims because it did not own the property at the time the wetlands designation occurred. 

Having lost on appeal in state court, the owner sued in federal court, claiming, again, that the designation qualified as a taking.  The Ninth Circuit rejected the trial court's conclusion that the takings claim was not ripe, but went on to conclude that the claim was barred under principles of res judicata, notwithstanding the fact that the state court never reached the merits of the takings claim. 

The holding arose from the fact that res judicata applies whenever the issue litigated in the prior action involves the same "primary right."  In other words, it did not matter that the state court found the takings claim unripe; what mattered was that the due process and equal projection claims (which were fully litigated) arose from the same fundamental claim as the County's designation of the property as a wetland:

The damages that Adam Bros. now seeks to obtain in federal court are identical to those it sought in state court.  For purposes of res judicata, it is irrelevant that Adam Bros. attempts to recover under different legal theories.

The silver lining for the owner:  though the state court reversed the $5.4 million damages award, it upheld injunctive and declaratory relief, invalidating the County's wetlands determination.  

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A decision this week by the California Court of Appeal holds that a purchaser of property suffering damages through government conduct may not sue for inverse condemnation where:

1. The buyer knowingly purchases property impacted by a government taking, and
2. The purchase price reflects the property’s condition in light of the government impacts.

In Ridgewater Associates, Inc. v. Dublin San Ramon Services District (May 11, 2010) __ Cal.App.4th __, it was largely undisputed that the District's waste water treatment facility caused water intrusion damage on a neighboring warehouse property.  Unfortunately for the property's owners, they failed to account for the inverse condemnation claim when the property sold.  The buyer discovered the problem during due diligence, and the seller agreed to a price reduction to account for the damages. 

However, the seller did not clearly assign its inverse condemnation claim to the buyer as part of the transaction.  Thus, when the buyer closed escrow and proceeded to sue the District in inverse condemnation, the Court of Appeal upheld a summary judgment in the District's favor.  The court held that the buyer lacked standing to seek compensation for damages accruing before close of escrow but, more importantly, also held that the buyer could not recover for damages accruing after close of escrow because the buyer was not damaged.   The court concluded that the reduction in the purchase price qualified as "compensation" for the "loss." 

Had the parties cleanly assigned the seller's rights to the buyer, this should not have been a problem.  In Ridgewater, however, the parties’ failure to address these issues provided the government agency with a “free pass” for what amounts to an ongoing taking of the property.  

For more information about the case and its implications, take a look at our E-Alert, Buyer Beware: Improper Sale Documentation Results in Waiver of Inverse Condemnation Claim.

SEPTEMBER 1, 2010, UPDATE:  The California Supreme Court issued an order depublishing the Ridgewater opinion. 

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OK, before I get into this one, you should know that I've been sitting on this story for a week, trying to decide whether it warranted a blog post.  I still haven't quite figured out what happened, and I was just about to let it go, but then my colleague Brad Kuhn pointed out earlier today that the very fact that the whole thing is so odd makes it worthy of a discussion.  So here goes. 

Last week, the City of San Clemente appealed from an earlier ruling by an Orange County Superior Court judge that the City of San Clemente was liable for a taking that resulted when the City (apparently in secret) down zoned a property and then tried to prevent the developer from completing its already approved plans to construct four residential lots on 2.85 acres.  The Court ordered the City to pay the developer $1.3 million, apparently representing the assumed $2.8 value of the property, less the cost to build an access road that would have been required to facilitate development.   

Now comes the weird part.  The development plans were approved in 1983 (yes, 1983), but the developer never proceeded.  According to an April 19 Orange County Register article, Judge: San Clemente owes developer $1.3 million, the reason the development did not proceed was because "[t]he developer held off construction because of high interest rates."  I understand that "high interest rates" might have deterred development for a few years in the 1980s -- but nothing happened for more than 20 years. 

The City apparently updated the zoning for the property in 1993 (ten years after granting the project approvals), but it failed to provide specific notice to the property owner -- this was the City's big mistake.  Apparently, nobody noticed the property had been rezoned until more than 10 years later, when the developer sought in 2006 to renew is application to develop the property.  The City denied the application, concluding that the 1993 zoning applied to the 2006 application, meaning the developer could build only one residential unit.  

The developer complained that it received no notice of the 1993 zone change, and the court agreed, ordering the City to "take it back."  Ultimately, I'm pretty sure that the court ruled that the City has a choice.  It can either pay the $1.3 million (effectively, a rough version of fair market value representing a taking of the entire property), or it must review the developer's new application under the pre-1993 zoning.  Doing so would not necessarily ensure project approval, but at least the developer would get another chance to entitle the property under the old zoning.  

So, what's the moral of the story?  I guess there are two:

1. If you are a developer with valuable entitlements, don't sit and ignore them for 20 or more years and then expect that you can simply pick up where you left off (though that ultimately may be the result here); and 
2. If you are a city trying to enact zone changes (and especially if you want to down zone property), make sure you are meticulous about giving proper notice to all affected owners so that you don't find yourself in a lawsuit fighting over a zone change that occurred more than a decade earlier.

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Last week, my colleague Rick Rayl blogged about the Ninth Circuit's issuing an order granting an en banc hearing of the Guggenheim case involving the City of Goleta's mobile home park rent control ordinance.  If anyone is interested in a more in-depth analysis of the issues of that case, how the en banc process works, how politics come into play, and how the Ninth Circuit may ultimately come out on the regulatory takings issue, Rick and I prepared a more in-depth article that addresses those issues.  The article, "9th Circuit Revisits 2009 Trailer Park Opinion," was published in the Daily Journal on March 23, 2010.

Feel free to let us know your thoughts or any additional questions you may have. 

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We reported earlier this week about the Ninth Circuit's March 12 order to hold an en banc hearing of its decision in Guggenheim v. City of Goleta.  The case involves a regulatory takings challenge to the City's rent control ordinance involving mobile home parks. 

On March 15, the California Court of Appeal for the Fourth District (San Diego) issued its opinion in MHC Financing Limited Partnership Two v. City of Santee (March 15, 2010, Case No. D053345).  The court rejected plaintiff's regulatory takings claim involving a City of Santee rent control ordinance, concluding that the “as applied” challenge was unripe and the “facial” challenge was stale.  This outcome is not surprising; in fact, one of the things that made the initial Guggenheim opinion significant was that the Court navigated its way through the various timeliness arguments and actually reached the merits. 

The MHC Financing case generated an interesting opinion, and it probably deserves a more elaborate analysis.  But (1) the opinion is really long -- about 50 pages, and (2) another eminent domain blogger, Robert Thomas of the inversecondemnation.com blog has already written a pretty nice summary of the case.  If you want more details, read the opinion -- or just read Mr. Thomas' "cliff notes" version. 

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Last fall, we reported on the Ninth Circuit's decision in Guggenheim v. City of Goleta, a regulatory takings case that generated considerable interest.  The Ninth Circuit Court of Appeals held that the City of Goleta's rent control ordinance constituted a taking and ordered the City to pay just compensation to the owner of a mobile home park. 

The Court concluded that the ordinance crossed the line because it had the effect of transferring as much as 90 percent of the property's value from the owner to the mobile home park's tenants.  The holding was significant not only because the Court found that the ordinance qualified as a compensable taking, but also because the Court actually reached the merits of the issue.  Many (perhaps most) regulatory takings cases fail for procedural reasons, with the Court never even reaching the merits. 

For example, courts often hold that regulatory takings cases are not "ripe"; in other words, the owner has not demonstrated that all reasonable avenues for generating an economically viable use of the property have been exhausted before filing the lawsuit.  In other cases, courts find the regulatory takings claim to be "stale"; in other words, the owner did not file the lawsuit within the applicable statute of limitations. 

And, finally, in an ironic twist, some factual scenarios apparently warrant the conclusion that the case is both "not ripe" and "stale"; in other words, the owner has not yet exhausted all options, despite the fact that the conduct that might give rise to a claim happened years earlier, creating a statute of limitations problem -- meaning there never was a viable time to file the lawsuit.

Thus, when the Ninth Circuit Court of Appeals navigated its way through all of the procedural obstacles, reached the merits, and found that a taking had occurred, the Guggenheim opinion understandably generated some buzz. 

On March 12, the case took a new turn.  The Ninth Circuit issued an order granting an en banc hearing of the Guggenheim case.  This means that a large portion of the Ninth Circuit panel (11 judges) will hear the case.  Whether the larger panel will reach a different conclusion than the three judges who initially heard the case remains to be seen. 

In the meantime, the September 2009 Guggenheim opinion is no longer citable as legal precedent.  This could have a significant impact on currently pending regulatory takings cases.   And, depending on whether the Court orders additional briefing and a new oral argument, the new opinion may not be issued for a year or more.  We'll let you know what happens. 

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Last week, I reported on Kimco of Evansville, Inc. v. State of Indiana, an access-impairment case pending for consideration by the U.S. Supreme Court.   

In an order earlier today, the Court denied the Petition for Writ of Certiorari.  This is not entirely surprising; in the same order in which the Court denied the Petition in the Kimco case, the Court also denied similar petitions in 175 other cases.  The Supreme Court grants Petitions in less than five percent of the cases presented to it.  

The Court still has pending before it another eminent domain case, Stop the Beach Renourishment v. Florida. 

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According to a January 10 post on the Fox Rothschild Eminent Domain & Real Estate Litigation Blog, the U.S. Supreme Court is scheduled to hold a conference this week on whether to grant a Petition for Writ of Certiorari on an access-impairment claim arising from a condemnation case in Indiana, Kimco of Evansville, Inc. v. State of Indiana. 

Post author David Snyder explains that the need for Supreme Court review arises from a "general rule" in most states that damages arising from access impairments are not compensable as long as the owner is left with reasonable access, and the belief among many that this "general rule" is fundamentally unfair.

California eminent domain law is generally more protective of condemnees than the law that exists in "most states."  (A classic example of this is California's Code of Civil Procedure section 1263.510, which makes California one of only a handful of states that provides business owners with a right to compensation for loss of business goodwill.)

However, even if California does not track exactly what "most states" do, California access-impairment law is quite a morass.  The "general rule" here is that an impairment must be "substantial and unreasonable" in order to justify compensation.  However, jurisprudence involving what constitutes "substantial and unreasonable" is murky at best, and reading the case law, it quickly becomes clear that courts are loathe to draw any bright, easily-followed lines in this area. 

Moreover, "substantial and unreasonable" need not always apply.  Turning back to business goodwill, it is not clear that business owners must meet that threshold where access impairments impact business goodwill, as section 1263.510, on its face, contains no "substantial and unreasonable" requirement.  

Confusion also exists in California about whether any difference exists between an access impairment by itself, as compared with an access impairment created in conjunction with a partial taking of property.  Ample case law exists to suggest that courts impose a higher level of scrutiny on access-impairment claims that do not involve any physical taking than they do on impairments associated with a physical taking, even though the impacts to property owners may be indistinguishable. 

In the end, California's eminent domain law could certainly use some clarity in this area, though I'm not sure the Indiana case -- even if the Supreme Court decides to hear it -- will make any real difference here.   That said, a Supreme Court ruling that all access impairments affecting value are compensable as a matter of constitutional right would certainly have repercussions across the country.   

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Perhaps the most talked-about California eminent domain case in 2009 has been the City of Stockton v. Marina Towers decision, in which the Court struck down the City's right to take property where the resolution of necessity contained no real public purpose (not surprising, since the City did not know at the time it filed the action what it would do with the property).   The case's tag-line usually played out like this:  the "project" was the condemnation itself, which does not qualify as a public purpose.   

This holding was itself somewhat interesting, as California law contains relatively few examples of a court's rejecting the government's right to take property.  What gave it real pizazz, however, was the fact that while the case was pending, the City of Stockton figured out what it wanted to do with the property -- and it proceeded to build the new, Stockton Ballpark on it. 

With no right to take, who now owned the shiny new stadium?  The court's solution was to allow the government a chance to file a new action to condemn the property now that a legitimate public use had attached.  And this week, the City Council voted to do just that, authorizing a new condemnation action to acquire the property. 

Record Staff Writer David Siders writes in a December 2 article "Stockton revisits ballpark land seizure:  Disputed property line divides left field from right" that the City agreed to commence a new action following a short public hearing Tuesday night.  The City's action was in response to a court-imposed December deadline to re-file; despite its action, the City claims to want to reach a settlement:

"This has gone on way too long, and we need to resolve this," Mayor Ann Johnston said.

That said, the parties may have vastly different views about the property's value:

During the initial eminent domain trial, a jury put the value of the Marina Towers property at just less than $2 million. Marina Towers previously said the value is closer to $6 million.

We'll let you know what ultimately happens. 

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Typically, regulatory takings litigation generates a lot of noise and gnashing of teeth but, at the end of the day, rarely are government agencies bitten with an order that they pay compensation. However, a new opinion from the federal 9th Circuit Court of Appeals, Guggenheim v. City of Goleta (Sept. 28, 2009, Case No. 06-56306), demonstrates that regulatory takings litigation can have teeth. In Guggenheim, the 9th Circuit holds that the city of Goleta's rent control ordinance on mobile home parks went too far and that the city will have to pay the park's owners just compensation. This case, particularly coupled with two other recent regulatory takings cases, Monks v. City of Rancho Palos Verdes and Casitas Municipal Water District v. United States, suggests that agencies may now need to pay close attention to their regulations if they hope to avoid a regulatory takings bite.

Whether these cases reflect a new trend remains to be seen, but it sure looks like the tide may be turning. And, if the “trend” continues, agencies in California should pay particular attention, since successful inverse condemnation plaintiffs stand to recover their attorneys’ fees, in addition to whatever damages they can prove. For more information about Guggenheim and regulatory takings generally, take a look at an October 15, 2009, article in the Los Angeles Daily Journal, "Adding Some Bite to the Bark."  
 

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