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

On January 19, 2012, the California Court of Appeal issued an unpublished decision addressing this very question.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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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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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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Want to know what's going on with some of Southern California's largest infrastructure projects?  Here's a quick update.

• I-5 Corridor Improvements:  If you live in California, you've almost certainly spent many hours on the 5 freeway.  It runs from the US/Mexico border all the way through Oregon and even up into Canada.  With Southern California's population growth, Caltrans has invested over $3 billion to improve two areas of the I-5 over the next five years:  (i) the segment between the Orange County line and the San Gabriel River Freeway (I-605); and (ii) the segment between the Ventura Freeway (SR-134) and the Kern County line.  You can review Caltrans' interactive map and see specifically what is going on in cities such as Norwalk, Burbank, Glendale, and San Fernando.  Take a look for yourself and learn about projects such as the Carmenita Road Interchange Project, the Imperial Highway Project, the Rosecrans Avenue Project, and many others.
• SR-47/I-110 Improvements:  Caltrans in cooperation with the Port of Los Angeles is proposing to widen the southbound State Route 47 to northbound Interstate 110 connector, and improving the northbound I-110 ramps at John S. Gibson Boulevard.  The project is currently in the environmental approval process, and if you'd like to learn more, you can attend Caltrans' public hearing on the project.  
• LA County Metro Projects:  Los Angeles County Metropolitan Transportation Authority has a number of rail and rapid transit projects in the works.  You can view all the plans on Metro's project's website.  To know just where the projects stand, take a look at Metro's Project Delivery Progression Chart.  You can also see the update on the Metro Gold Line Extension on our firm's Infra Insight Blog.  

If you're interested in learning more about the future of design-build projects in California, take a look at the obstacles we face going forward.

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It's not often we go an entire week without a blog post, but last week was a bit hectic on our end.  Here's a few California eminent domain and infrastructure updates from throughout the week:

• San Bernardino Eminent Domain:  In its article "IVDA approves eminent domain for Tippecanoe widening," The Riverside Press-Enterprise is reporting that the Inland Valley Development Agency has authorized moving forward with eminent domain to acquire 461 square feet of property in San Bernardino near the north east corner of Tippecanoe and Central Avenue as part of a street widening effort.  While the property has been appraised at only $7,240, the Agency estimates it will spend nearly $50,000 in administrative and legal costs to accomplish the acquisition.  Aside from the public perception concerns, this dramatic price differential highlights one reason why public agencies usually turn to eminent domain as a last resort.  But sometimes the property is absolutely necessary and a project cannot be completed without the necessary right of way.  In this case, the Agency appears to be left with no other options as negotiations dating back to 2008 have been unsuccessful.
• Yucca Valley Condemnation:  According to the Vote29 Blog, Yucca Valley approved using eminent domain to acquire 30' a easement to pave a 60' wide road.  The City is using its controversial power after it did not receive any response from the owner to the City's offer to purchase the property.  Again, the City's appraised value of the property is small ($2,400), and it is likely the City will spend much more in attorneys' fees to go forward with eminent domain. 
• Calleguas Water District Eminent Domain:  According to a Ventura County star article, "Water district may invoke eminent domain on Lewis Road to finish pipeline," the Calleguas Water District may use eminent domain to acquire the easements necessary to transport wastewater out to sea off Port Hueneme.  The District has apparently had difficulty locating the property owners.  In order to move forward with adopting a resolution of necessity, the District must find that an offer has been made to the owners of record or the offer has not been made because the owner cannot be located with reasonable diligence.  (See CCP 1245.230(c)(4).)  
• Los Angeles Infrastructure Projects:  The California Transportation Commission announced it has allocated $825 million to 92 highway, transit and rail projects in an effort to strengthen California's economy and upgrade the state's transportation system.  Los Angeles County received $526 million in allocations primarily for Caltrans design-build projects.  See the press release for the funding distribution.  (Caltrans also will begin construction next month on the $380 million I-5 / Carmenita Road Interchange project.)
• High Speed Rail:  U.S. Transportation Secretary Ray LaHood announced the California High Speed Rail Authority can begin spending a $16 million grant to help integrate California's rail network with the high-speed passenger service on the San Francisco to San Jose corridor.

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Today the California Transportation Commission announced the allocation of $101 million to fund 90 state-wide transportation projects.  The CTC's updated project allocation list provides a full breakdown of all the projects.

In reviewing the project list, there appears to be a big push towards going "green":  many of the projects involve improvements such as tree planting, compressed natural gas (CNG) buses, pedestrian and bicycle trails, or acquisition of property for restoration and habitat protection.  There's also a handful of traditional right-of-way improvement projects such as the Encinitas Grade Separation Project and the construction of an auxiliary lane in Santa Ana for the Dyer Road off-ramp to Edinger Avenue.

Caltrans' press release focused on two items:  (1) the "Middle of Buckhorn" project on State Route 299 west of Redding; and (2) the approval of the first phase of the I-805 Managed Lanes North in San Diego County.  Caltrans' Director, Cindy McKim, touted that "transportation projects are providing jobs and improving mobility for people and businesses in California."

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We noted in our 2010 year-in-review E-Alert that the stimulus dollars were starting to make their way towards local agencies so infrastructure projects could be built.  2011 is now off to a fast start:  according to a recent Caltrans press release, the California Transportation Commission has announced the allocation of $1 billion towards 107 California transportation projects, including $838 million from Proposition 1B bond funds (which was approved by voters in 2006).

Here are some of the highlights as to how these funds will be utilized:

• $46.55 million to install rail collision avoidance technology along the Metrolink
  system and Pacific Surfliner Intercity Rail Corridor.
• $2.94 million to install rail collision avoidance technology along the Burlington
  Northern Santa Fe Railroad tracks from Los Angles to Fullerton.
• $20 million to convert high occupancy vehicle (HOV) lanes to high occupancy toll
  (HOT) lanes along the I-10 and I-110 corridors.
• $33.99 million for the acquisition of 100 compressed natural gas (CNG) buses by
  the Los Angeles County Metropolitan Transit Authority.  

To find out the specifics about the fund allocations and the 107 projects, you can check out Caltrans' project allocation spreadsheet. 

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I live in Orange County.  Every time I contemplate a trip to San Diego, I run the calculations: 

• How bad is the I-5 freeway going to be;
• How badly do I need to be in San Diego; and
• Can I find a way to extend/change my schedule to avoid the worst of the traffic? 

Granted, I engage in the same internal debate when I need to head towards Los Angeles, but at least going that direction, I have a number of route choices.  Going to San Diego, it's basically the I-5 or stay home. 

Caltrans is in the midst of a major planning process for possible expansion of the I-5 between La Jolla and Oceanside.  The public comment period for the North Coast Corridor Project expires November 22.  Caltrans is considering five alternatives, ranging from doing nothing to adding six lanes with dedicated, barrier-separated "managed" lanes (either high occupancy vehicle lanes, toll lanes, or some combination of the two). 

According to a November 9 article in the San Diego Union Tribune, "Five options on I-5 expansion: Which do you prefer?", the expansion plans have created vocal support -- and vocal opposition.  This isn't surprising, as virtually every proposed public project that involves potential eminent domain generates controversy. 

A poll being conducted shows (at least as of the time of this post) 42% hoping to leave the freeway as it is and 55% hoping for one of the expansion models (I'm not sure what happened to the other 3%).

For more information about the project, Caltrans has released a 10,000-page North Coast Corridor Project Draft Environmental Impact Report / Environmental Impact Statement. 

Regardless of anyone's opinion, it is pretty clear that construction is not on the immediate horizon.  It will reportedly take Caltrans months just to sort through and address the comments.  Even assuming one of the expansion alternatives is selected, construction is likely several years away. 

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Both Chapters 57 and 67 of the IRWA have June meetings upcoming (their last meetings before the summer hiatus).  Details are:

• June 2, 2010:  Chapter 57 is meeting at the Riverside Convention Center, located at 3443 Orange Street, Riverside.  The speaker will be Ken MacVey, an eminent domain attorney with Best, Best & Krieger in Riverside.  Contact Communications Chair Jan Spindler for more information. 
• June 8, 2010:  Chapter 67 is meeting at the Holiday Inn, Orange County Airport, located at 2726 South Grand Avenue, Santa Ana.  We will have two speakers, Ricky Rodriguez from Caltrans and Tom Bogard from OCTA.  In addition, Chapter 67 will be swearing in its new Executive Board, including Michele Folk from OPC as incoming President and a truly brilliant eminent domain attorney, Rick Rayl (wait, that's me), as incoming President-Elect.  Contact Hospitality Chair Joe Munsey for more information. 

In addition to those regular meetings, Chapter 1 (Los Angeles) is holding a full day, "Right of Way and the Law Seminar," on June 22, at the Quiet Cannon, located at 901 North Via San Clemente, Montebello.   The entire panel looks great, but I want to highlight the 2:30 presentation being given by one of my partners, David Graeler, along with Joe Avila of Avila & Putnam, both very good eminent domain attorneys. 

David and Joe are offering a presentation entitled How the Push Toward Renewable Energy Sources Will Impact Eminent Domain, a topic not dissimilar from the topic I spoke on earlier this month at Chapter 67's Renewable Energy Seminar.  The event should be a good one, as Chapter 1 always puts a lot of work into its programs. 

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