What does this mean?  In many cases, nothing particularly significant.  Oversight Boards have been empanelled for many Successor Agencies before today, and even once empanelled, there is no guarantee that anything will happen immediately.  But theoretically, Successor Agencies can start to dispose of assets, with Oversight Board approval. 

There are a few other things going on, and some acronyms to talk about.  Here are a few highlights:

Recently, we saw the first lawsuit generated by the winding down process (at least , the first one we noticed).  The City of Fresno has sued over the make up of its Oversight Board, arguing that the Board has not been created in compliance with AB X1 26.  An April 23 article in the Fresno Bee, Fresno Oversight Board members sued at chaotic meeting, opens with this colorful quote:

The Fresno Oversight Board got two pieces of bad news when it met Monday for the first time.
Board members were told they don't exist.
Then they got sued -- by their own legal advocate.

A Sacramento County judge later ruled that the Board could meet -- for now -- but ordered the parties to return to court for a substantive hearing on the Board's makeup on May 14.  

And while the successor agencies and their Oversight Boards try to sort through the process, there are continued efforts in the Legislature to amend the law.  There have been a dozen or more bills introduced, focusing on everything from basic housekeeping/clean up to addressing affordable housing funds to creating a framework for an orderly dissolution process. 

The bill that has seemed to have the most momentum has been AB 1585,  It seeks to do the following:

• Provides discretion to oversight boards to allow for expansion of enforceable obligations;
• Restores some funds for low and moderate income housing;
• Provides guidance regarding disposition of assets in an effort to avoid “fire sale”; and
• Makes changes to stabilize bond payments.

AB 1585 was approved by the Assembly, 56-7, receiving two more votes than the super-majority required for passage as an urgency measure.  At this point, it remains unclear whether AB 1585 -- or any other pending redevelopment legislation -- will pass in both houses.  And if something does pass, it is also unclear whether Governor Brown will sign any such legislation.  To the extent a new law impacts the amount of money available to the state, a veto remains a likely outcome. 

Finally, a few new acronyms.  The Enforceable Obligation Payment Schedule, EOPS, is the schedule of enforceable obligations created by the redevelopment agencies before their dissolution.  These are not particularly significant at this point, because the real focus is on the Recognized Obligation Payment Schedule, ROPS, which is the enforceable obligation payment schedule created by the successor agency and then certified by the county auditor-controller and approved by the oversight board.  The ROPS will be getting considerable attention over the next few months as the stakeholders argue about what qualifies as a legitimate enforceable obligation -- and what does not.    

We can't predict what will happen next, but it will almost certainly be interesting.  And at the end of the day, it seems likely that the Fresno lawsuit will be only one in many, many legal disputes over this process. 

A verdict much better than the settlement possibility feels like a "win" and a verdict much worse than an offered settlement understandably feels like a "loss."  It's really pretty simple.

But I have not had enough decisions to have empirical evidence of whether settling is better than trial in the long run.  And I certainly don't know whether it matters whether I represent an agency or a landowner/business owner in this respect. 

The good news is that someone else had done this empirical work, and there results are pretty interesting.  The bottom line of this research seems to involve two outcomes:

1. Agencies are more often "correct" in rejecting an offered settlement and proceeding to trial.  In other words, when the agency turns down a demand, it will do at least as well or better at trial far more often than a landowner who rejects a settlement offer.  On the other hand,
2. When the agency makes a mistake, the costs are much higher than a landowner's mistake.  In other words, while the agency "misses" less often, when the agency does miss, it will often get killed at trial. 

This research was brought to our attention by Stanley Leasure, who writes a fairly new blog, Eminent Domain ADR.  Mr. Leasure is reporting on a 2008 study published by Randall L. Kiser, Martin A. Asher, Blakeley B. McShane in the Journal of Empirical Legal Studies titled Let's Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations. 

To be honest, I have not yet managed to get my hands on the actual article, so I cannot meaningfully comment on or critique Mr. Leasure's characterization of it.  I will say, however, that though I had never really thought about the issue in quite this way, the conclusions seem to make sense. 

Generally speaking, I think landowners are more often guilty of having a higher opinion of the value of their property than is warranted.  This is natural, and presumably derives at least in part from the emotional attachment and value many people place on their own property -- but which the market does not recognize.  (The same concept would apply to business owners.)  For this reason, it can be difficult for an owner to accept the reality of "fair market value" in a forced transfer.  

On the other hand, we have all seen that when the agency gets it wrong, it can get it really wrong.  The downside for an agency, especially in a severance damage or goodwill context, can be almost limitless, and it does not surprise me at all that the wildest misses are on the agency side.  

I'm going to work on getting my hands on the article itself, and I may have more to say about it down the road.  In the meantime, it seems that Mr. Leasure is working on a series of blog posts on this topic, and if you are interested, you may want to follow along at blog.edom-adr.com. 

One of the questions that arose during our presentation involved the fairly recent requirement that agencies offer to reimburse the property owner up to $5,000 to obtain his or her own, independent appraisal of the property.  This is a topic that comes up frequently at these events; indeed, it commanded a large block of time at a recent ASA-sponsored seminar at which our group spoke. 

The requirement comes from Code of Civil Procedure section 1263.025 (one of the statutes enacted in the wake of the Supreme Court's 2005 Kelo decision).  Section 1263.025 reads, in pertinent part:

A public entity shall offer to pay the reasonable costs, not to exceed five thousand dollars ($5,000), of an independent appraisal ordered by the owner of a property that the public entity offers to purchase under a threat of eminent domain, at the time the public entity makes the offer to purchase the property.

The statute's purpose is to facilitate early resolutions, hopefully avoiding the time and cost of an eminent domain action.  But the statute leaves some questions concerning its application. 

First, nothing in section 1263.025 specifies when the owner must obtain the appraisal or request the reimbursement.  We have come across situations recently where owners sought to use the $5,000 to obtain a trial appraisal just before the expert exchange.  In my view, this does not comply with the statute's intended goal, in that it cannot facilitate early settlement if the owner does not even obtain the appraisal until shortly before trial. 

Don't get me wrong.  I am not arguing that owners should be forced to provide agencies early, "free discovery" by turning over these early appraisals.  We've written about this subject before, and I continue to believe that agencies in general have no right to demand a copy of the owner's appraisal before making the $5,000 reimbursement.  (For present purposes, I'm leaving aside the specific statute applicable to Caltrans, which does require that the owner present the appraisal in order to obtain the reimbursement.) 

An owner should expect, however, to disclose at least some of the information in that independent appraisal if the owner wants to use that appraisal as leverage for an early settlement.  But such a voluntary disclosure in an effort to reach a settlement is different from compelled disclosure in order to obtain reimbursement.

The bottom line:  I think agencies should have a right to expect that owners who wish to take advantage of this $5,000 appraisal reimbursement will do so early in the process and with the intent of seeing if an early resolution is possible. 

The second question involves negotiation timing.  Now that the agency must offer to pay for this independent appraisal, must the agency also wait for the owner to obtain that appraisal before proceeding with a condemnation action?  While this sounds logical, I don't believe this is a fair requirement.  California's extended possession timeline already wreaks havoc with many projects and can even put federal funds in jeopardy.  Adding another barrier to gaining possession -- especially considering the timing of the independent appraisal falls outside the agency's control -- does not reflect good policy, in my view.

On the other hand, where the agency does not have a compelling reason to proceed more quickly, no reason exists that the agency should not encourage owners to get their appraisals quickly in exchange for the agency's not proceeding with eminent domain in the interim.  This would help fulfill the statute's goal by giving the parties a more meaningful chance to negotiate with similar information before condemnation proceeds. 

In the end, it will take either an amendment to section 1263.025 or a published decision to clarify these issues.  But they seem to arise frequently as practitioners struggle with how to interpret this new law, and for what it's worth, I thought I would share my view of how I think the law should evolve when all is said and done on this issue. 

Now, I follow several other blogs and have a much better sense about how it all works.  So much so, apparently, that I've been asked to sit on a panel at an upcoming PLI Conference Lawyers' Guide to Using Social Media for Professional and Client Development 2012.  Truth be told, I'm inclined to think that all the really good bloggers are too busy to attend such an event, but I'm choosing to block that thought process in favor of being honored to be included in the program. 

I think -- and hope -- that the program will provide some good insights as to why attorneys could benefit from blogging and many other forms of social media.  If you're an attorney and you're thinking about these issues, you may want to look into it.  There's still time to register. 

On Wednesday, March 21, I'll be speaking with three of my colleagues, Brad Kuhn, David Graeler, and Bernadette Duran-Brown at a half-day event sponsored by the American Society of Appraisers.  We're presenting Everything You Need to Know About Appraisals for Litigation at Scott's Restaurant and Bar in Costa Mesa.  The seminar runs from 2:00 to 5:00, with a dinner and networking event to follow. 

There may still be some seats available for the event, but if you want to attend, you should contact the ASA soon.  We planning for an interactive, engaging event, and we hope to see you there. 

If the matter fails to settle before trial, the owner can seek an award of litigation expenses (i.e., attorneys’ fees and expert costs) if the court ultimately determines that, in light of the outcome, the agency’s final offer was unreasonable and the owner’s final demand was reasonable. (See Code Civ. Proc., § 1250.410.)

A new published decision makes clear that the opportunity to recover litigation expenses requires an actual trial. On March 1, the Court of Appeal issued its opinion in Dept. of Transportation v. Menigoz (March 1, 2012), holding that if the matter settles at any time before the jury is empanelled, the agency has no liability for litigation expenses, regardless of how unreasonable its pre-settlement conduct may have been. On the other hand, once trial commences, the agency could face liability for litigation expenses – even if the parties reach a settlement before the trial ends. 

The opinion is fairly simple and straight-forward, though it does contain an interesting procedural twist.  The parties exchanged final offers and demands only $30,000 apart.  Five days before trial, Caltrans accepted the owner's demand, and the parties submitted a stipulated judgment.  The trial court thereafter granted the property owner's unexpected (at least to Caltrans) motion for award of litigation expenses, leaving Caltrans in a tough spot. 

As we saw last year in City of Gardena v. Rikuo Corp. (2011) 192 Cal.App.4th 595, post judgment orders are not appealable where the underlying judgment was stipulated (making the judgment itself non-appealable).  So what was Caltrans to do?

It opted for a writ of mandate, rather than a traditional appeal, claiming the trial court had exceeded its jurisdiction.  The Court of Appeal concluded that this was procedurally proper, and it proceeded to rule on the merits. 

The Menigoz Court rejected the owner's invitation to extend an earlier decision in Coachella Valley County Water Dist. v. Dreyfuss (1979) 91 Cal.App.3d 949, in which the Court of Appeal awarded litigation expenses in an eminent domain case where trial commenced, but the parties settled prior to getting to a jury verdict. 

The Menigoz Court explained that the commencement of trial in Dreyfuss made all the difference, establishing what appears to be a bright-line rule: litigation expenses are potentially recoverable pursuant to section 1250.410 once trial commences, but not a second before.

For agencies, the lesson is clear:  make sure that any settlement reached once trial commences contains language that expressly states that the owner cannot seek an award of litigation expenses.  For owners, well, let's just say that there may be sneaky opportunities for owners negotiating with unaware agencies. 

For those who don't want to take the time to read the actual article, here are a few of the highlights:

• In January, Governor Brown proposed eliminating redevelopment agencies.  In June, he finally got legislation to accomplish that goal.  In August, the Supreme Court agreed to hear a legal challenge to the new law.  And on December 29, the Supreme Court upheld the law dissolving California's redevelopment agencies, while simultaneously striking down a companion law that would have provided agencies a "pay for play" mechanism to buy back into the system. 
• For the first time, a California court imposed liability for a regulatory taking under the three-part Penn Central test.  The Avenida San Juan Partnership v. City of San Clemente, 201 Cal.App.4th 1256 court held that the city's efforts to down zone a property to preclude its development triggered liability under Penn Central.
• In Galardi Group Franchise & Leasing, LLC v. City of El Cajon, 196 Cal.App.4th 280, the Court reaffirmed the rule that a claim for lost business goodwill must derive from the operation of a business on the property, precluding goodwill claims by a franchisor.  However, the court also held that the franchisee could assign its goodwill claim to the franchisor, allowing the franchisor to make a goodwill claim in the name of its franchisee.
• In Los Angeles County Metropolitan Transportation Authority v. Alameda Produce Market, 2011 Cal. LEXIS 12171, the California Supreme Court held that one party's withdrawal of a condemnation deposit does not result in the waiver of any other party's right-to-take challenge, despite the general rule that withdrawal of a condemnation deposit effects such a waiver pursuant to Code of Civil Procedure section 1255.260.

For 2012, we expect considerable focus on the fallout from the Matosantos decision as the unwinding of California's redevelopment infrastructure is dismantled (subject to the success of the legislative efforts to modify the new law).  We also expect continued development of the regulatory takings law, with a possible renewed focus on Penn Central. 

Finally, we expect an increasing split in the way the public views eminent domain, with Kelo torch bearers coming down swiftly on perceived "bad" uses of eminent domain (and, in particular, any version of redevelopment-based eminent domain that might arise from the ashes of 2011).  But for traditional uses of eminent domain for public infrastructure projects, we expect increasing support for such projects, as the public sees the public benefits - and job opportunities - massive infrastructure projects can generate. 

If you want more, go ahead, click the link and read the entire article (you know you want to). 

We'll also be joined for additional commentary by former California Senate Republican Leader Dick Ackerman and former Los Angeles County Counsel Bill Pellman. 

We're going to spend about an hour talking about the law and how it will be implemented.  We'll also take questions - and even do our best to answer them.  If you already have a question in mind, feel free to let us know now, and we'll see what we can do to make sure it gets addressed.  

And if you haven't registered yet, it's not too late.  We hope to "see" you tomorrow. 

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. 

• "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. 

If you are in need of some last minute shopping ideas and don't know what to get the eminent domain practitioner on your gift list, there are some great choices to be found. 

Perhaps the most all-inclusive option comes to us through the Institute for Justice.  Its "Rally in a Box" comes complete with stickers, posters, signs, and six eminent-domain-themed T-Shirts. 

But there's more.  Just in time for the Supreme Court's pending decision in the redevelopment lawsuit, you can choose to celebrate by supporting redevelopment with a timeless classic, the I heart Redevelopment shirt.. 

If you're more included to support the Governor and his battle over budget dollars, you may want to opt for one of the "I am Sutter Brown--CA First Dog" items available, with proceeds going to California's general fund. 

I had hoped to end this post with a fabulous holiday-themed eminent domain cartoon, but I discovered that (1) as we get more removed from the Kelo decision, there is less of that circulating on the Internet, and (2) that which is circulating comes with strict copyright restrictions.  So instead of a clever cartoon, I will end merely by wishing everyone a happy and safe holiday season. 

• 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.

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.

But today, there's a different twist for those of us who deal with eminent domain.  Congress is debating the extension of the payroll taxes yet again, but this time, a major eminent domain issue is wrapped up in the fray.

Specifically, Republicans in Congress had said they planned to couple the extension of the tax cuts with a requirement to fast-track approval of a controversial pipeline project that President Obama previously planned to delay until at least 2013. 

The Keystone XL pipeline is intended to link oil fields in Canada with refineries in Oklahoma more than 1,500 miles away.  It has been the subject of considerable controversy, largely from environmentalists, but also from property-rights advocates objecting to the massive eminent domain that the project would entail.  

A November 7 article by Jonathan Mariano, Keystone XL Pipeline Relies on Eminent Domain for Success, explains:

The fight against the Keystone XL pipeline has been mostly an environmental fight, but quite frankly, not everyone is an environmentalist and may not resonate with this message. However, eminent domain may just provide enough common ground for the environmentalist and non-environmentalist alike.

So what happened?  This afternoon, Republicans in the House passed the payroll tax cut package, 234-193.  Included in the package is a requirement to accelerate approval of the Keystone XL project.  But the Republicans' "victory" may be illusory, as explained by Lisa Mascaro in a December 13 Los Angeles Times article, House approves payroll tax cut extension, with strings attached:

But the Republican win is expected to be short lived, as the bill has limited chances in the Senate, where Democrats oppose the GOP priorities . . . added to the bill to win Republican votes, including one to accelerate the controversial Keystone XL pipeline.

(As an amusing aside for those of us who have heard the name Susette Kelo more times than we can possibly imagine, one of the most vocal opponents of the Keystone project and its use of eminent domain is named, ironically enough, Sue Kelso.  An October 17 article in the New York Times, Eminent Domain Fight Has a Canadian Twist, talks about Ms. Kelso's part of the story.)

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. 

In support of the CRA / League of Cities' position, seeking to overturn the laws:

• Association of California Cities - Orange
• City of Irvine
• Long Beach
• Public Interest Law Western Center
• San Bernardino County
• Southern California Coalition
• Southern California Non Profit Housing
• Riverside County

In support of the State's position, seeking to uphold the laws:

• Affordable Housing Advocates
• California Professional Firefighters
• Center for Constitutional Jurisprudence
• California Teachers Association 
• Los Angeles Unified School District
• MORR - Chris Norby
• Santa Clara Unified School District

Next, we have a new lawsuit entering the fray.   Last week, a group of 10 Southern California cities filed a lawsuit seeking to strike down ABX1 26 and ABX1 27.  This lawsuit, filed in Superior Court, would seem at first glace to be a bit late to the party.  After all, the Supreme Court has already accepted jurisdiction over the original lawsuit, promising a decision by January.

So what is the point of a new filing in Superior Court?  Perhaps there is none.  The State responded almost immediately, filing a notice of related cases and noting for the Court that the case encompasses issues pending before the California Supreme Court and may become moot before any action is taken. 

But there may be a bit more to it.  The new lawsuit indeed raises the very same arguments as those being made in the Supreme Court.  But the new lawsuit also raises some additional grounds for striking down the laws - 14 claims of invalidity in total - including claims that the bills:

1. Did not qualify for passage on a majority-vote basis.
2. Exceeded the scope of the "special session" in which they were passed.
3. Did not meet the requirements necessary to take effect immediately.
4. Endanger existing contracts.  

And one final update.  Yesterday, Governor Brown vetoed SB 450, a bill proposed by Senator Alan Lowenthal of Long Beach that would have made changes in Low and Moderate Income Housing funds managed by redevelopment agencies.  But before anyone thinks Governor Brown may be changing his mind, his veto message for SB 450 makes clear that the veto is tied to the pending Supreme Court case, which makes the bill "a little ahead of its time."

As I learned earlier this week at the IRWA Chapter 67 lunch meeting, Governor Brown's plan to eliminate redevelopment is not part of some long-planned effort.  According to a presentation by one of my partners, Gale Connor, when now Governor Brown was Mayor Brown of Oakland in recent years, he actually benefited from and backed several redevelopment efforts.  It is only now, when facing nearly impossible budget shortfalls, that Governor Brown has taken this path. 

So where do things stand?

Status of the Lawsuit:  The lawsuit over ABX1 26 and ABX1 27 continues in the Supreme Court.  The respondents (those supporting the laws) filed their brief on September 9; the responsive brief from the California Redevelopment Association is due September 24.  (By the way, I've seen these bills referred in several iterations including "X1 26," 1x 26," "26 1X," and various other combinations.  According to the official bill on the legislature's website, the correct designations are ABX1 26 and ABX1 27.  I'll try to use that designation consistently from now on, but I make no promises.) 

Earlier this week, the Court also denied the CRA's request for clarification/modification of the partial stay entered last month. 

Other Recent Developments:  In an effort to avoid the new legislation and the murkiness of the lawsuit and the Supreme Court's partial stay, a few agencies have adopted a different tactic, seeking a legislative end run around the whole mess.  Whittier reportedly took the first crack at it, seeking a legislative exemption from the new law regarding the sale of the site of the former Fred C. Nelles Youth Correctional Facility.  

While initial press reports suggested this tactic might succeed, it ultimately failed in the legislature.  A September 12 article in the Whittier Daily News, "Defeat of Nelles development bill likely to delay project, Whittier officials say," describes the effort and its ultimate failure in more detail.   If Whittier had managed to garner legislative support, one must wonder whether Governor Brown would have signed the law. 

Other agencies are reportedly trying similar tactics, including an effort by Monrovia related to the Gold Line Extension Project, which is described in a September 7 article in the Altadena Patch, "Gold Line Extension Could be Delayed by Redevelopment Lawsuit." According to an article in today's Arcadia Patch, the Monrovia City Council has hired a lobbying firm to help with those efforts, but the legislative session has now ended, so it seems unlikely anything will happen on this front in the immediate future.

Finally, one "clean up" bill was passed before the legislative session ended.  SBX1 8 passed in both the Senate and Assembly on September 8, but it has not yet been signed by the Governor.  If signed, it would make several changes to ABX1 26 and ABX1 27.  We'll provide additional details about those changes when and if the Governor signs the bill. 

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.

In Cathedral City, the city has plans to acquire a property on which a longstanding thrift store sits.  An August 17 article by Colin Atagi in The Desert Sun, Cathedral City plans may push Angel View move, opens:

A Cathedral City thrift store that's older than the community itself may relocate if the city acquires the property through eminent domain.

While the parties do not appear to be too far away on the price of the real estate, the Angel View Thrift Mart that operates on the property is concerned about finding a location that will allow it to maintain the level of sales - and donations - they receive at their current location. 

While it sounds like both parties want to find an amicable resolution, the facts do raise an interesting legal issue.  If the parties cannot reach a deal, and if the city condemns the thrift store property, forcing its relocation (or, if no relocation site can be found, closure), can the store - which, by definition, has no profits - make a claim for lost business goodwill?

Without addressing whether the thrift store involved has a viable claim (I know nothing about the situation other than what I've read in the August 17 article), the short answer is yes.  A non-profit can maintain a claim for loss of business goodwill. 

While profits and goodwill often go hand in hand, California's business goodwill statute, Code of Civil Procedure section 1263.510, actually makes no mention of the word "profit."  Rather, California defines goodwill as:

the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.

Thus, even though a non-profit can never have profit, this does not preclude recovery for lost business goodwill.  This does not mean that all charitable organizations possess goodwill, or that they will lose goodwill if forced to relocate, but it is possible.  In fact, we've handled cases in the past for churches in which we established that the church possessed goodwill. 

CAVEAT:  While I am confident that the above analysis is correct, I am not aware of any reported California eminent domain opinion squarely holding that a non-profit can recover lost business goodwill.  (I'm also not aware of a published opinion holding that they cannot.)  

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.