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

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  A recent unpublished Court of Appeal decision, Joffe v. City of Huntington Park, highlights (1) the types of impacts owners suffer and (2) the difficulty owners face in trying to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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The use of eminent domain in a declining real estate market presents a number of unique issues.  I often receive calls from property owners who are frustrated with the government's timing of condemnation proceedings, and want to know how they can get market-peak-values for their property. 

This issue was the hot topic of a previous IRWA seminar I chaired, Property Acquisition, Appraisal, and Relocation in an Upside Down Market.  And a recent blog post by the Weiss Serota Helfman law firm, Eminent Domain Valuation in a Falling Market Poses Questions for Condemning Agencies, triggered some thoughts I felt worthwhile to pass along. 

If a government agency has been long-planning to acquire a property, but the proposed project does not go forward for several years, property owners are typically left in limbo with a "cloud" of condemnation hanging over their property.  Sometimes, the agency's actions go too far, and result in liability.  When liability attaches in a rapidly declining real estate market, who bears the burden of the market decline:  the agency, or the property owner?  The answer depends on whether the agency is liable for (i) a de facto taking or (ii) precondemnation damages (or "Klopping" damages). 

• De Facto Takings:  Under a de facto taking claim, the landowner must demonstrate that a government agency’s particularly oppressive acts result in a taking of the property either through a physical invasion or through a direct legal restraint.   In assessing damages, the property is to be valued on the date that the “taking” occurs, and all decline in value after that date is to be borne by the condemning agency.  Since the taking is said to have occurred at this earlier date, damages would include those losses wholly unrelated to the precondemnation activity, such as losses due to a general decline in market value in the area.
• Precondemnation Damges:  Under a precondemnation damages claim, the landowner must demonstrate that the agency has acted unreasonably in issuing precondemnation statements, either by excessively delaying in bringing the eminent domain action, or by other oppressive conduct.  In assessing damages, the landowner is entitled only to those losses caused by the agency’s announcements, and not any decline in market value that is caused by general conditions unrelated to the activities of the condemning agency (i.e., the agency is not liable for any general market declines).

Both claims can be difficult to prove, a de facto takings claim more so.  But in a rapidly declining real estate market, understanding the nuances between the two claims is important, as it can make a significant difference on the amount of just compensation. 

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We've reported in the past about some of the regulatory takings issues created as a result of the Western Riverside County Regional Conservation Authority's ("RCA") efforts to conserve property pursuant to the Multiple Species Habitat Conservation Plan ("MSHCP").  It now appears that those conservation efforts have created quite the turmoil with citizens in the City of Murrieta.

According to a recent North County Times article, "MURRIETA: Landowners frustrated with conservation board, city leaders who refuse to meet," about 100 members have organized a group called the Members of Citizens for Quality of Life in Murrieta in an effort to get the City's and the RCA's attention about the ramifications of the MSHCP.  In particular, the property owners are frustrated with the MSHCP process and how they've been unable to develop their property without having to give up large portions of their land. 

The article recounts stories we've heard from many property owners, describing the exhausting maze of paperwork that must be completed, the hundreds of thousands of dollars that must be spent on biological studies, and the repeated denial of any attempt to ultimately develop.  And at the end of the process, the owners claim that they are often left with little choice but to sign a contingent, below-market-value purchase agreement proposed by the RCA that, according to one owner, "will destroy your ability to ever sell your land."

The group wants a sit-down meeting with the City and the RCA, but so far, that meeting has been rebuked.  The reason, according to the City and the RCA, is due to the fact that there is a pending lawsuit brought by the Calvary Chapel - Murrieta seeking $25 million in damages as a result of the MSHCP's designating the church's 118-acre property for conservation.  It will be interesting to follow that lawsuit and the impact it has on negotiations with other owners.

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The Alameda Corridor-East Construction Authority ("ACE") is working on a $75 million project to improve rail service in the San Gabriel Valley.  The project involves constructing a rail underpass on Baldwin Avenue in El Monte, and it is part of a larger, $1.1 billion project that includes 20 grade separations.   

ACE has acquired nearly all of the right of way for the Baldwin Avenue underpass, but one owner, Fred Jast, has not moved.  According to a recent San Gabriel Valley Tribune article by Rebecca Kimitch, "El Monte man fights eminent domain claim," Mr. Jast has been fighting with ACE for several years:

"They have the right to take my property, but they don't have the right to steal my property," Jast, 69, said.

While the article describes gaining possession of Mr. Jast's property as "one of the last hurdles ACE faces before construction can begin," the Baldwin Avenue underpass is only part of the larger project.  ACE plans another, similar underpass in 2010 on Nogales Street South between Gale and San Jose in the City of Industry.  The Nogales Street (South) underpass will cost $84.1 million.  ACE will need to acquire a number of parcels for that part of the project.  

Other phases of the project are planned for 2011, including the $499-million San Gabriel Trench, and the Ramona Street, Mission Road, Del Mar Avenue, and San Gabriel Boulevard grade separations in San Gabriel. 

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