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 regulatory takings claims and the benchmark three-prong Penn Central test for analyzing potential liability.  We've also noted the issues involved in consistently applying those factors, and the resulting unpredictibility in evaluating the merits of potential regulatory takings claims.  

William Wade, Ph.D., a resource economist with the firm Energy and Water Economics, often writes about these issues, offering clearly articulated potential solutions to dealing with these Penn Central issues.  And Mr. Wade has done it again, as his recent article, Sources of Regulatory Takings Economic Confusion Subsequent to Penn Central appearing in the Environmental Law Reporter, is another fine piece of work.  Among other insights, Mr. Wade explains that

Courts have confused ad hoc considerations of case facts with economic valuation methods, which are not ad hoc."

We recommend checking out our colleague Robert Thomas' blog post about Mr. Wade's article at inversecondemnation.com.  And, as a shameless plug, take note of Mr. Wade's "Author's Note," paying thanks to yours truly for help with the article.  It was a truly enjoyable -- and honorable -- experience working with one of the foremost economic experts in the field of regulatory takings.

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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  On September 22, 2011, in an unpublished decision, the California Court of Appeal not only reaffirmed the Ridgewater holding, but took it one step further.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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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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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 Guggenheim case for more than a year now, and in the last week or so, there have been a number of developments.  As a quick recap, this decision by the Ninth Circuit Court of Appeals held that the City of Goleta's rent control ordinance - which had the effect of transferring the vast majority of a mobile home park's value from the park owner to the tenants - did not constitute a taking.  The decision followed an earlier decision by a different panel of the same court, in which the court held that the ordinance did qualify as a taking. 

Not surprisingly, the owner then sought review by the U.S. Supreme Court.  The Cert Petition is now pending, and the stack of amicus briefs on the case has been growing rapidly.  I could take the time to summarize them, but fortunately for me, someone else has already done it.  Here are some links to Robert Thomas'  inversecondemnation.com blog from the last week:

• Takings Claims Run With The Land, a post summarizing a brief by the National Association of Home Builders in support of the Guggenheims' Petition;
   
• No "Expiration Date" On The Takings Clause, a post summarizing a brief filed by the Cato Institute in in support of the Guggenheims' Petition;
   
• Ninth Circuit "Did Violence" To Penn Central Test, a post summarizing the brief Mr. Thomas filed and another brief filed by Equity Lifestyle Partners, both in support of the Petition;
   
• Ninth Circuit Applied All Penn Central Factors, a post summarizing the brief filed by the City in opposition to the Guggenheims' Petition.  
   

Aside from these posts, the blog contains a detailed resource page about the Guggenheim case, with links (at least as of the date of this post) to nine amicus briefs in support of the Guggenheims and three amicus briefs in support of the City. 

Nice work, Robert (and thanks for saving me the trouble of trying to keep track of all of this myself).

We'll let you know when the Supreme Court makes its decision. 

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I presented an update on eminent domain/redevelopment issues making their way through the legislature at this week's IRWA Chapter 67 (Orange County) monthly meeting, and I've received a few follow-up requests for more information.  So I decided it was probably worthwhile to put all the information here on the Nossaman blog. 

• Status of California Redevelopment Agencies:  It's now been several weeks since the  attempted Assembly votes, where Governor Brown's attempt to eliminate redevelopment agencies fell one vote short.  The Governor needs the $2.2 billion in redevelopment funds this year to bridge the budget deficit.  It sounds like there is some intense back-channel lobbying taking place with the Redevelopment Association proposing a voluntary suspension of their funding or at least agreeing to contribute a portion of their revenue stream to local school districts.  I spoke with a few connected people this week and word is that Governor Brown's elimination plan -- at least as proposed -- is not likely to pass (aside from the Assembly, the proposal would also need to pass the Senate, which does not seem likely).  We'll just have to wait and see what ultimately comes of this.

• Federal eminent domain legislation: The House is currently considering H.R. 1433, dubbed the "Private Property Rights Protection Act of 2011," which is a bill that would prevent states and municipalities from using eminent domain for economic development purposes (such as redevelopment) on any project for which the agencies are receiving federal funding.  H.R. 1433 also prohibits the federal government from using eminent domain for economic development (including increasing tax revenue or creating jobs for general economic growth).

• Use of Redevelopment Funds for Sports Teams:  Assemblyman Chris Norby (Fullerton) has introduced AB 1234, which would prohibit redevelopment agencies from using tax revenue or bond proceeds to develop, recruit, or retain any professional sports teams.  This legislation, if passed, could potentially kill a new stadium for the Oakland A's or the San Diego Chargers, which are both being contemplated through the use of redevelopment funds.  (In case you missed it, read a more detailed article here.)

• Inverse Condemnation Liability:  AB 328 is also working its way through the State Assembly; it is a bill that would require a reduction in compensation payable to a successful plaintiff in an inverse condemnation action in direct proportion to the owner's percentage of fault in causing damages to the owner's property. This would change current law whereby a public entity is liable for 100% of the damages where its project causes physical damage to private property, regardless of whether others contributed to those damages.

• Renewable Energy Mandates:  This week, Governor Brown signed Senate Bill 2X, which requires private and public utilities to obtain 33% of their electricity from renewable energy resources by 2020, raising the target from the current 20%, while providing the flexibility necessary to meet the higher standard.

We'll follow-up on these legislative issues as soon as we catch wind of anything newsworthy. 

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A new bill -- AB 238 -- is working its way through the State Assembly which would require a reduction in compensation payable to a successful plaintiff in an inverse condemnation action in direct proportion to the owner’s percentage of fault in causing damages to the owner’s property.  While the doctrine of comparative fault is one of the cornerstones of tort law, it is rarely applicable to inverse condemnation actions. 

Ever since the seminal decision in Albers v. County of Los Angeles (1965) 62 Cal.2d 250, there has been a more or less bright line distinction between the strict liability standard for recovering in inverse condemnation and general tort doctrines such as negligence, foreseeability and comparative fault.  The only two exceptions to this rule involve non-compensable damages inflicted in the proper exercise of the police powers and those situations in which the state at common law had the right to inflict the damage, such as for public flood control projects.

Generally, liability for inverse condemnation will lie so long as the government’s project, as designed and constructed, is a substantial cause of damages.  The fact that the property owner is partially at fault for creating those damages in the first instance is largely irrelevant.  (Blau v. City of Los Angeles (1973) 32 Cal.App.3d 77, 84-85).  That is to say, under current law, a public entity will be held liable for 100% of the damages where its project causes physical damage to private property, regardless of whether others, including the owner, contributed to those damages. 

This strict liability standard has not been without controversy.  It is based upon a sort of “loss distribution” interpretation of the takings clause of the California Constitution (Article 1, § 19).  Its goal is to “to distribute throughout the community the loss inflicted upon the individual by the making of public improvements.”  (Bacich v. Board of Control (1943) 23 Cal.2d 343, 350).  On the other hand, it has been argued that to not apply comparative fault principles to inverse condemnation actions unfairly penalizes public entities for the wrongful conduct of others.  The cost of the public improvement would be evenly distributed throughout the community, and the owner of the damaged property would bear no more than his or her fair share, if the public entity’s liability was limited to the portion of the damages caused by the project itself. 

This later policy argument has found little support in the case law, outside of the arcane area of water law.  However, AB 328 would change all of this.  This common law doctrine of comparative fault would be enshrined in the Code of Civil Procedure as the new Section 1000 of Chapter 3.4 “Comparative Fault in Inverse Condemnation.”  Whether this bill gains traction remains to be seen, but we will be following it with great interest.

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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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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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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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2009 has come and gone.  With it, we moved one more year past 2005's Kelo decision -- and a lot closer to what those of us who have worked in eminent domain for many years consider "normal."  Massive eminent domain reform efforts seem -- for now -- to be a thing of the past. 

The California Legislature passed no substantive changes to California's eminent domain law, and the closest we came to a marquee eminent domain case last year was probably the Marina Towers decision, which was much discussed, but does not represent any sweeping changes to California law. 

Still, there were a few notable decisions, and we have summarized them all in a "2009 eminent domain year in review" piece.  We also forecast some probable trends for 2010, which include a likely increase in overall eminent domain activity as the economy recovers and the stimulus dollars percolate down to the ground, along with continuing court attention on regulatory takings issues. 

For those who want a "checklist" of notable reported eminent domain decisions from 2009, here it is:

• Murphy v. Burch (2009) 46 Cal.4th 157 (Easement by Necessity / Right to Take);
• City of Stockton v. Marina Towers LLC, et al. (2009) 171 Cal.App.4th 93 (Right to Take);
• Hauselt v. County of Butte (2009) 172 Cal.App.4th 550 (Inverse Condemnation);
• Los Angeles Unified School District v. Pulgarin (2009) 175 Cal.App.4th 101 (Business Goodwill);
• People ex rel. Dept. of Transportation v. Acosta (2009) 178 Cal.App.4th 762 (Business Goodwill);
• Kearney v. Foley & Lardner (9th Cir. 2009) 566 F.3d 826 (Discovery);
• Guggenheim v. City of Goleta (9th Cir. 2009) 582 F.3d 996 (Inverse Condemnation / Regulatory Takings); and
• Montara Water & San. Dist. v. County of San Mateo (N.D. Cal. 2009) 598 F.Supp.2d 1070 (Right to Take). 

Finally, for a preview of at least one upcoming 2010 case, watch for the U.S. Supreme Court's decision in Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection.  It will almost certainly generate a lot of attention when it comes down.

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