Encinitas Contemplates Eminent Domain for School District Property

It's not too often you see one government agency threaten another agency with eminent domain.  But it does happen.  A recent article by Barbara Henry in the U-T San Diego, Encinitas has few options on Pacific View site, highlights on such dispute taking place right now.

According to the article, the City of Encinitas very much wants to acquire the Encinitas Union School District's 2.8-acre property that formerly housed the Pacific View Elementary School.  But the School District has rejected the City's overtures, turning down a $4.3 million offer to purchase.  Instead, the School District intends to put the property up for auction, with a minimum bid price of $9.5 million.

Since no progress has been made on acquiring the property, the City is apparently contemplating using its power of eminent domain.  But the School District fired back, protesting that the use of eminent domain would (1) be premature, since the CIty has yet to identify a public use for the site, and (2) put the City in a financial quandry, since it would be forced to pay the "highest price" for the site based on its "highest and best use." 

  • Right to Take:  The first issue raised by the School District is essentially a right-to-take challenge, as a public agency cannot adopt a resolution of necessity to acquire property by eminent domain without first identifying a public purpose.  This concept was highlighted in a 2009 case, City of Stockton v. Marina Towers, where the court rejected a local agency's adoption of a resolution of necessity to condemn property without identifying a public use for the site.  While the City here could easily come up with a public use for the property, the issue is one of timing, as it will be difficult to accomplish anything before the site is put up for auction.
  • Highest Price Valuation:  The second issue raised by the School District is well-known eminent domain valuation law.  Not only is property to be valued based on the "highest price" it could acheive in the open market between a willing buyer and willing seller, it is also based on the "highest and best use" for the property -- which may not necessarily be the property's current use. 

This will be an interesting story to follow, but the City should make sure it knows what its getting into before going much further down the path of contemplating eminent domain. 

Lessons from a Long, Long Eminent Domain Battle

A few weeks ago, the California Court of Appeal issued an interesting unpublished decision detailing a long, drawn-out eminent domain battle in Riverside County.  I haven't blogged about it yet because, well to be honest, it feels like such a crazy story I couldn't figure out where to start or what to cover.  But here we go.

Background

The case, Elsinore Valley Municipal Water District v. O'Doherty, starts off rather dull.  In order to serve a residential development, the Water District planned to construct a pump station in a public right of way.  Because it was believed the planned station location (the street) was owned by the City of Lake Elsinore, a "friendly" condemnation action was filed.  The City and the Water District stipulated to possession, and the pump station was constructed.  Then, things became a bit more complicated.

The owner of property adjacent to the street claimed that he owned the underlying street in fee, and the City only had an easement for street purposes in the area planned for the pump station.  The owner challenged the Water District's right to take on a number of grounds, including that he did not receive the proper statutory notice of the resolution of necessity.  (See Code of Civil Procedure section 1245.235.)  The parties proceeded to a right to take trial, at which it was determined the adjacent property owner held fee ownership in the underlying street, but that the City held a public road easement across the property.  Moving on to the right to take challenge, the court found the Water District's resolution of necessity was invalid because the District failed to give proper notice to O'Doherty before adopting the resolution.

The trial court then issued a conditional dismissal of the eminent domain action (see Code of Civil Procedure section 1260.120), but allowed the Water District to essentially go back in time and hold a new hearing, this time giving proper notice and making the required offer of compensation to the owner.  In adopting a new resolution of necessity, the Water District was to pretend that the pump station had not already been constructed.  As part of the dismissal, the Water District was also ordered to pay the owner's reasonable attorneys' fees associated with the lack of proper notice.  However, the owner's attorney was working on a contingency basis, and because no fees were due with respect to winning a right to take challenge (fees were only payable upon a result of obtaining monetary compensation), the owner had not incurred any attorneys' fees.

The Water District started over, obtaining an appraisal, making an offer, sending out proper notice, and adopting a new resolution of necessity.  The owner once again challenged the District's right to take on a whole host of grounds, including that the resolution was a sham and the agency was precommitted to the result since the project had already been built.  The court walked through each of the required factors of a resolution of necessity (i.e., the project is in the public interest, compatible with the greatest public good and least private injury, and the property is necessary for the project).  After spending an inordinate amount of time on these factors, the court finally determined the resolution was valid and rejected the owner's right to take challenges. 

The court then moved on to phase 2 of the trial, dealing with compensation.  The Water District asserted the owner was not entitled to compensation because the scope of the existing street easement permitted the installation of a pump station.  The court concluded the pump station was consistent with the purpose of a street as it promoted the flow of people or goods for a public benefit.  The court then moved on to whether the pump station caused other damages to the owner's property, such as increased storm water discharge, visual impairments, and a substantial impairment of access.  Despite the owner's appraiser's finding of about $450,000 in severance damages, the court found the owner was not entitled to any compensation for these various damages. 

The Appeal

The owner then appealed the decision.  On appeal, the Court denied the owner's right to take challenges (on mootness grounds, since the owner's request for relief in the appeal did not mention overturning the agency's right to take, but instead only discussed receiving fair compensation).  The Court also upheld the trial court's decision on the non-compensability of the various severance damages components.  However, the Court concluded that the pump station was not consistent with a public street, and therefore the owner was entitled to compensation for the taking.  The Court also upheld the trial court's decision on refusing to award the owner his non-incurred contingent-fee-arrangement attorneys' fees based on the successful right to take challenge.  The Court directed a new trial on the one successful component of the owner's appeal -- the value of the underlying property, burdened by a street easement, where the pump station was located.  

Lessons

Whew -- we made it!  (Are you still reading?)  Well, if you're still with me, we might as well quickly summarize.  A few lessons:

  • For public agencies, before adopting a resolution of necessity, make sure you provide notice to all potential owners of the impacted property.  It's better to be safe than sorry, so if there's any doubt, err on the side of caution and send out the notice.
  • For property owners and attorneys, make sure you set up your engagement letters correctly if you're on a contingency fee basis and challenging a public agency's right to take the property.  Having a simple contingency fee arrangement which does not discuss the outcome if there's a successful challenge may mean no attorneys' fees recovery.
  • If you're going to appeal a decision and still challenge right to take, make sure you remember to ask the court to overturn the agency's right to take (as opposed to solely seeking compensation).
  • The Norm's Slauson "irrevocably committed" argument used to challenge resolution of necessity findings seems to have less teeth as time passes.  I mean, if an agency is not precommitted even when its project is already built, it's going to be hard to find such a situation.

For more details on the Court's findings, the reasoning and background, please feel free to read the long, long decision yourself.  There's actually some very interesting pieces, it's just hard to summarize it all here.  Good luck!

Eminent Domain 2011 Year in Review

We're looking back on 2011's wild ride and looking forward to the twists and turns still in front of us in 2012.  We've summarized all of this into the 2011 version of our annual Eminent Domain Year in Review piece.

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). 

The Continuing Clash Between Eminent Domain Deposits and Right-to-Take Challenges

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

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

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

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

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

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

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

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

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

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

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

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

Rancho Cordova Redevelopment Agency Hit With Big Eminent Domain Jury Verdict

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

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

What's next?  The RDA can:

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

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

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

Petition for Supreme Court Review Seeks Clarification of Pretext Post Kelo

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

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

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

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

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

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

Azusa Property Owner Loses Right to Take Challenge, Settles Eminent Domain Action

Roy Fowler's Furniture Station has been a well-known staple within the City of Azusa.  The 39-year-old store has witnessed much change in the area known as Corky's Corner.  However, the store is now officially shutting down after the City of Azusa acquired the property through eminent domain.

According to an article in the San Gabriel Valley Tribune, "Long-time Azusa furniture store to close after losing battle against city, eminent domain," the Furniture Station finally reached a settlement with the City after a contentious eminent domain battle.  The City sought to redevelop the area and adopted a resolution of necessity to acquire the property in January 2010.  The owner challenged the City's right to take the property, but that challenge was unsuccessful.  The parties thereafter reached a settlement for $1.45 million -- not dramatically higher than the City's original $1.1 million offer - and substantially lower than the owner's earlier $3.3 million demand. 

Interestingly, at first the City apparently was not interested in the owner's $1.45 million offer, but decided to accept the proposal given Governor Brown's efforts to eliminate redevelopment agencies

The City Manager, Fran Delach was not "happy" with the settlement, but he noted the deal paves the way to allow immediate development of the property.  Delach indicated that the City is negotiating with a "very exciting" potential suitor.  The property owner, on the other hand, was disappointed with the City's negotiation tactics and attitude towards the eminent domain process.  While Fowler will no longer be able to operate the Furniture Station in Azusa, he does have another location in Covina on Arrow Highway and Citrus Avenue.

A More Personal View of the Redevelopment Fight from National City

We've blogged a lot in the past two months about redevelopment issues and the Governor's plan to help right California's budget by, among other things, eliminating redevelopment agencies.  But most of what we've written has viewed redevelopment from the 30,000 foot level. 

For policy-making decisions, viewing the big picture is hugely important.  But a case making news this week out of National City reminds us that the redevelopment fight is also quite personal. 

The Community Youth Athletic Center has been fighting what it perceives as an attack on its very existence for nearly four years.  The battle began not as a right to take challenge in an eminent domain case, but as a challenge to the overall redevelopment plan for the area and, in particular, its determination that about 700 properties - including the CYAC's boxing gym - qualify as blighted. 

This week, CYAC's lawsuit is finally reaching the trial court for a decision on the merits, after years of procedural wrangling that includes a 2009 decision by the Court of Appeal in CYAC's favor.  CYAC claims that the agency failed miserably in its efforts to justify an extension of its 1995 redevelopment plan.  Part of its complaint arises from changes to California law that followed 2005's infamous Kelo decision, providing additional scrutiny and procedural hurdles to the way agencies make blight findings.  According to CYAC, in 2007 the agency simply did things the same half-hearted way it always had, ignoring completely the newly enacted requirements. 

CYAC is represented by the Institute for Justice, self-described as the "nation's only libertarian public interest law firm" - and the firm that pushed the Kelo case to the U.S. Supreme Court in 2005.  Among other things, they've prepared a short video about the CYAC, its mission to help at risk kids, and its fight with the city.  If nothing else, it's really well done:

So what's going to happen?  It depends on the outcome of the current trial.  If the CYAC prevails, it may get the agency's redevelopment plan invalidated, removing the threat of eminent domain to build planned luxury condominiums - at least until such time as the agency adopts a new, properly documented redevelopment plan. 

Moreover, regardless of whether the agency prevails in the current lawsuit, it claims that it has no plans to condemn the CYAC's property.  But if the agency wins, it could change its mind.  And if it does, it's probably safe to assume CYAC will fight the government's right to take its property.  

Turning back to the big picture, if the Governor gets his wish and abolishes redevelopment agencies, the whole issue may evaporate into thin air.  With no redevelopment agency, there's no redevelopment plan, no blight finding, and no (even hypothetical) plan to turn the CYAC's gym into condos. 

Finally, one might wonder why this battle is taking place now, if the agency says it has no plans to condemn the property.  Doesn't it make more sense to have this fight only when (and if) the government decides to condemn?  Probably, but that's not the way the law works. 

Under California law, if someone like CYAC wants to challenge the government's blight findings, it has to do it within a limited period of time after the plan is adopted (or, as here, amended).  Failure to challenge the blight findings now could make it difficult - or even impossible - to challenge them later as part of a right to take challenge. 

So the parties are in court this week fighting about a possible eminent domain action that may never even have happened in a dispute that may be rendered moot if the Governor's plan is adopted.

Redding Redevelopment Agency Moves Forward With Eminent Domain; More on the Way?

Recently we've been reporting on redevelopment agencies' efforts to utilize redevelopment funds before they're no more under new proposed legislation.  Whether you agree or disagree with the existence of redevelopment agencies, sometimes those agencies acquire properties on behalf of other government entities for undisputed public purposes.  For example, the Redding Redevelopment Agency is currently acting on behalf of the State Administrative Office of the Courts to acquire property necessary to build a new Shasta County Courthouse.  If redevelopment agencies are abolished, these government entities will need to look elsewhere when it comes to property acquisition.

More specifically on the Redding Redevelopment Agency situation, according to the article "City's Sights on Land," the Agency agreed in a special session this week to commence eminent domain proceedings against the owners of three downtown parcels needed to build the new Courthouse.  In total, eleven parcels are needed for the Courthouse, and Agency officials are also contemplating purchasing (acquiring?) a 110,000-square-foot Costco store on Dana Drive.

The Agency has made the necessary offers, but the owners disagree on price.  One of the owner's attorneys apparently has objected to the Agency's right to take on the grounds that the offer is so low that the taking is not planned in a manner that will be compatible with the greatest public good and least private injury. An agency must find that a project is planned in a manner that is compatible with the "greatest public good and least private injury" prior to adopting a resolution of necessity to proceed with eminent domain.  Unless the offer is so far off that the agency couldn't meaningfully evauate project alternatives, I don't see how the amount of an agency's offer to purchase has anything to do with this finding

Assuming the Agency succeeds in acquiring all the necessary property, the proposed Courthouse will feature 14 courtrooms and is scheduled to be completed by the end of 2014.

Redevelopment Agencies and Eminent Domain: Well-Reasoned Article Misses Part of the Picture

Over the weekend, Chlorinated Liberty posted a pretty good article that articulates the primary reasons people cite as the basis for abolishing redevelopment agencies.  The article, "How Eliminating California's Redevelopment Agencies Spurs Economic Growth," takes a reasoned approach to why the free market is better equipped to handle redevelopment and blight remediation than the government - and its redevelopment agencies. 

The article walks through some statistics that show that many of California's redevelopment agencies did not report any job creation generated by their projects over a multi-year period.  It talks about allegations of corruption, mismanagement, and failed projects.  It even cites data showing that strong private property rights are a key component of private investment, concluding

private property is necessary for economic growth and to achieve prosperity. Government infringement through redevelopment's use of eminent domain powers undermines private property rights in California. This distorts incentives, discourages the use of assets as collateral, and forfeits the benefits of capitalism. By eliminating redevelopment and the use of eminent domain, municipal leaders will witness the economic growth they so desperately desire.

I actually agree with much of what the article says, but it only glosses over the other side of the coin - and it's an important other side.  Before starting down the path towards articulating why we should abolish redevelopment agencies, the article concedes:

Places such as Pasadena's Old Town, Stockton's water front plaza and San Diego's Gaslamp Quarter have rightfully been touted as models of success.

The article then glosses over these to pursue its anti-redevelopment agenda.  But what about these "models of success"?  Without redevelopment agencies - and, yes, the use of eminent domain - what would have become of these areas and others like them throughout the state?

I'm all for allowing the free market to address redevelopment where possible, and I agree that the government's involvement may hinder, rather than facilitate, timely growth.  On the other hand, I believe that there are places where the market cannot, or will not, react to situations in desperate need of redevelopment.  Where that occurs, government involvement can turn miserable, blighted areas into vibrant communities.  And to do this, the government sometimes needs to use eminent domain to assemble the necessary property to make these redevelopment projects feasible.

In the end, I think the Chlorinated Liberty article serves to highlight just how complicated this issue is.  Both sides of the debate have good points to make, and no solution will be perfect.  Ultimately, a solution that provides greater oversight of the redevelopment process - generating more "models of success" and fewer corruption scandals - probably makes sense. 

But if the "solution" goes so far as to abolish redevelopment agencies (as Governor Brown proposes) or to eliminate their eminent domain powers, I imagine we'll all look back many years later and wonder why some of California's worst areas still have seen no viable market-driven redevelopment. 

Supreme Court Declines to Hear Key Eminent Domain Case

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

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

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

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

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

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

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

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

Rancho Cordova RDA's Eminent Domain Powers Upheld

The City of Rancho Cordova's Redevelopment Agency has been working to implement plans to eliminate blighted conditions along Folsom Boulevard.  As part of those efforts, the RDA filed an eminent domain action to acquire a 9-acre site owned by Lily Company.

Lily Company challenged the RDA's right to take on numerous grounds, including lack of proper blight findings and allegations that the RDA was colluding with the Los Rios Community College District.  We initially reported on the case in an August post, Rancho Cordova Eminent Domain Case Involves Allegations of Contractual Interference.

The court has now upheld the Rancho Cordova RDA's right to take the property.  According to an article by Helen Brewer in the Rancho Cordova Post, Superior Court Affirms Rancho Cordova Redevelopment Agency in Eminent Domain Case, the court ruled that the RDA's Resolution of Necessity:

contains ample evidence of the blighted condition of the subject property and the surrounding area, of the need to acquire the subject property in order to further the objectives of the City’s Redevelopment Plan…to lead to the greatest public good and the minimum of private injury.

This does not mean, of course, that Lily Company has lost the entire case.  In most eminent domain cases, the real fight is over the amount of just compensation to be paid; that fight is still ahead of the parties.  But with the right to take challenge defeated, the RDA should have the option of seeking prejudgment possession, which would allow it to proceed with the project while the trial on compensation is still pending. 

As one interesting side note (and a sign of the times), it appears that anyone really interested in this case can relive the entire thing on line.  The Courtroom View Network has posted links to the entire trial on its website. 

I have never actually used the CVN site; I only stumbled onto it looking for more information about this case.  And, as entertaining as it would be to watch two experts in the field, Norm Matteoni and David Skinner, battle it out in court, I'm not willing to pay the money for the video and the bucket of popcorn I'd need. 

That said, if you have used the CVN services, please let me know what you think of them.  I'm intrigued. 

Eminent Domain Controversy in Signal Hill

In an all-too-familiar tale these days, a redevelopment agency is seeking to acquire property as part of its efforts to alleviate blighted conditions in the city, and owners are reacting strongly to the agency's plans to utilize the power of eminent domain where owners are reluctant to sell. 

According to a November 5 article in the Signal Tribune, "Property owners condemn Signal Hill RDA’s use of eminent domain," the situation in Signal Hill pushes all the buttons on both sides of the issue:

  1. The redevelopment agency touts numerous successful projects, including converting "many contaminated oil-production and industrial sites into successful retail centers and thriving residential communities";
  2. The agency's claim of success in its redevelopment efforts have been well documented; the agency's "Las Brisas" project received the California Redevelopment Agency's 2006 Award of Excellence for turning an area "characterized by a high crime rate, vacant and boarded up buildings, and mismanagement by absentee landlords" into a " neighborhood consist[ing] of 90 attractive affordable residential units, courtyards, a park, and a community center that includes an on-site police substation, a childcare facility, a public meeting area, social services offices, and a computer lab";
  3. The redevelopment agency might not, in a perfect world, be at the stage where it really wants to condemn the properties now, but its power of eminent domain expires on November 17;
  4. One of the properties being condemned actually lies outside the redevelopment area, but (according to the city), its acquisition "will benefit housing in the city’s redevelopment project area";
  5. The properties being sought include a number of operating businesses that may not themselves appear blighted at all;
  6. The acquisitions are taking place under horrible market conditions, causing at least one owner to claim it is "unfair to offer him fair market value for the property at a time when the real estate market is depressed and causing his property to have a 50-percent diminished value"; and
  7. Even though the acquisitions will happen now, in this down market, the agency apparently does not intend to use the properties for five years or more, leaving business owners and property owners wondering why they should be forced out now (see item 2 above).

Does the agency need to acquire these properties for much-needed redevelopment?  Perhaps.

Will it use the properties to improve the city?  Hopefully. 

But for the imminent expiration of the agency's power of eminent domain, does the agency need to acquire these properties now?  Almost certainly not. 

West Oakland Contemplating Expanded Eminent Domain Powers to Aid Redevelopment

West Oakland has some notoriously tough neighborhoods, including the large ACORN project area where Black Panther co-founder Huey Newton was killed and an area known unflatteringly as "Ghost Town."  Over the years, it has been the subject of some controversial public works projects, facilitated through extensive eminent domain.  This includes the West Oakland BART station, a major postal facility, and the ACORN housing project.  

An October 4 article in the Contra Costa Times by Brian Beveridge, "'Eminent domain' draws shudders in West Oakland" describes the development of the postal facility as follows:

Hundreds of homes and at least two popular black-owned nightclubs, Slim Jenkins Club and Ester's Orbit Room, were destroyed or relocated when the Postal Service used eminent domain to acquire the land at Seventh and Willow streets.

Now, as we initially reported a few weeks ago, the City is considering expanding its eminent domain powers in an attempt to accelerate efforts to remediate blight and, in particular, in an effort to facilitate a proposed Kroger facility.  Mr. Beveridge's article explains:

[D]espite objections from both businesses and some residents, Oakland Community and Economic Development Agency staff will recommend Tuesday night that the City Council expand its eminent domain powers to accelerate redevelopment in West Oakland.

The article notes an ongoing effort to acquire property for a 72,000 square foot Kroger facility, though there appears to be some dispute as to what is actually going on.  The City claims Kroger and the property's owner are in active negotiations, and that eminent domain would only be used as a last resort.  The owner, however, claims that no negotiations are taking place.  

Current policies prohibit the use of eminent domain to acquire residential properties or for any commercial projects larger than three acres.  The Kroger project involves about five acres, meaning the policy will need to change before eminent domain could be used to acquire property for it.

The City Council is expected to vote tonight on a policy amendment specifically tailored at allowing eminent domain in a small area that includes the property Kroger wants to acquire.  According to Councilmember Nancy Nadel, "The expansion of eminent domain is only for this grocery store project and that is why I support it."

New Court Decision Addresses Eminent Domain Issues

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

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

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

On appeal, the following issues were decided:

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

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

Glendale Plans to Extend Eminent Domain Authority

The City of Glendale plans to vote tonight on a plan that would extend eminent domain authority in its central redevelopment area for an additional 12 years.  According to an August 10 article in the Glendale-News Press, "City Set to Extend Eminent Domain," the agency's eminent domain authority is currently set to expire next month. 

According to the Director of the Community Redevelopment & Housing Department, Philip Lanzafame, eminent domain is a key tool if redevelopment projects are to succeed:  "If you didn't have this, some property owners could hold the community hostage."

This action comes as Glendale is in the midst of efforts to acquire a key property needed for a planned expansion of the Museum of Neon Art.  So far, those efforts have been unsuccessful, and a representative of the property's owner has asked the city to hold off while he completes efforts to bring a national retail tenant to the space.  

Assuming Glendale does indeed extend its eminent domain authority, whether the property's owner is able to secure a major tenant may become moot, as the city's authority to condemn will trump any other plans the owner may have for the property.

Today Marks the Five-Year Anniversary of Kelo

Five years ago today, the Supreme Court announced its decision in Kelo v. City of New London, triggering perhaps the most broad sweeping eminent domain reform effort in U.S. history, along with tremendous critical commentary -- including, as just one example, an August 2005 piece on Forbes.com titled Eminent Disaster.

Quite frankly, I'm a bit bored by the decision after five years (I can't begin to count the number of times I've explained the decision and what it means to clients, at seminars and conferences, and on this blog).  However, others are marking the occasion with commentary, analysis, and even a You Tube video.  Here's a sample of what's floating on the web today:

If you've read all of this, and still want to read more about Kelo, you really should take a deep breath -- and immediately shut off your computer.  Go outside.  See a movie.  Watch the Wold Cup.  Something. . . .   Seriously. 

City of Lodi Struggling with Redevleopment Issues in the Face of Eminent Domain Opposition

The City of Lodi held a special meeting of its City Council this week to talk about options for a revised Redevelopment Agency.  And, even though (1) the City has already enacted protections against using eminent domain for redevelopment purposes, and (2) the proposal includes no eminent domain authority, it appears residents are still up in arms over the issue. 

According to a June 10 article by Maggie Creamer of the Lodi News-Sentinel, "Eminent domain a major concern at Lodi City Council's redevelopment meeting," the public appears more concerned with the threat of eminent domain than the need for redevelopment.  One speaker explained that residents want even more assurances that eminent domain will not be used:

"It's a fundamental concern, and no amount of logic will convince people otherwise. It's an emotional issue," she said.

Despite this, it appears the fears may be largely unfounded, at least in this case:

Councilman Larry Hansen said the council decided to not include eminent domain in any form in its redevelopment agency, and that the city has a strict eminent domain ordinance.

That said, he acknowledges that people remain concerned about what might happen "20 years from now" if the redevelopment plan moves forward.  

I'm all for the public's right to oppose eminent domain, especially for redevelopment purposes.  But I think the pendulum swings too far when a city apparently in bad need of redevelopment is potentially thwarted by an anti-eminent domain agenda even where the city has taken steps to craft a redevelopment plan that, on its face, does not allow for the use of eminent domain. 

It will be interesting to see what happens. 

Riverside Property Owner Loses Right-to-Take Challenge in Eminent Domain Case

Several years ago, the Elsinore Valley Municipal Water District filed a "friendly" eminent domain action to acquire a portion of an unimproved "paper" street from the City of Lake Elsinore.  The property was to be used to construct a water pumping station to serve a nearby development, and the City had no objection.  The water district took possession, and began construction of the pumping station.  So far, this seems like a non-story, right?

Well, to the water district's surprise, a nearby property owner appeared in the action and challenged the water district's right-to-take the property; the owner claimed to have an interest in a portion of the unimproved street, and also asserted that the project limited access to his neighboring property, thereby diminishing its value.  The neighboring owner asserted that if he was unsuccessful in challenging the water district's right to take the property, he sought over $750,000 in damages. 

This was not what the water district had planned for when it filed the condemnation, which involved a minimal payment to which the City had already agreed.  And given that construction had already commenced on the project, I'm sure concerns arose about what would happen if the owner won the right to take challenge (for example, see our e-alert on the Marina Towers decision and our subsequent update).  So what happened here?

According to a Press-Enterprise article, "Judge rules in favor of Elsinore Valley water district in eminent domain case," after years of litigation, a Riverside County Superior Court judge denied the neighboring owner's right-to-take challenge, and ultimately found that the owner had no interest in the property being acquired.  Thus, despite the long and unplanned journey through the court system, the water district came out victorious.

An Interesting Argument Concerning Whether Eminent Domain for Economic Development Makes Economic Sense

Marc Scribner of the Competitive Enterprise Institute published this week an article about the economics of eminent domain for economic development (i.e., for redevelopment purposes) entitled "This Land Ain’t your Land; this Land Is my Land."  I found the piece interesting, despite the fact that it seemed the author started from the conclusion "eminent domain is bad" and worked backwards crafting an analysis to get there. 

Ultimately, however, Mr. Scribner does provide some interesting insight.  He does not simply come out and say eminent domain for economic development is unconstitutional or that it qualifies as eminent domain abuse (though it seems clear that is how he really feels about it).  Instead, his article purports to analyze whether using eminent domain for economic development makes economic sense in the long run.  And this is where the piece creates some interest. 

Mr. Scribner claims that the mere fact that eminent domain for economic development is possible has a chilling effect on entrepreneurship, especially in lower income areas where an entrepreneurial spirit may be most needed.  The reasoning behind this is somewhat complicated, but relies in large part on the idea that the government is simply incapable in most cases of accurately assessing the various economic forces at play:

An increase in the discretionary use of eminent domain for economic development would lead to a decrease in entrepreneurship. As local officials lack the knowledge and expertise to effectively promote private development, their political missteps can keep their localities in poverty by undermining entrepreneurship, and forgo the wealth it would have created.

In the end, Mr. Scribner and I part ways on his conclusion that eminent domain should never be used for redevelopment purposes.  I think that in some cases, the open market simply cannot adequately address truly blighted situations, and having the government step in -- even when eminent domain is required -- can trigger revitalization and economic growth. 

That said, the forces Mr. Scribner identifies no doubt exist, and suggest the government should go down such a path only after careful thought and analysis.  Had local officials in New London, Connecticut, viewed the issue as Mr. Scribner views it, the string of events leading to the infamous Kelo decision might have played out differently.  

Sierra Madre Eminent Domain Measure Stirs Debate

In December, we reported on Sierra Madre's decision to allow voters to decide whether the City should possess the power to condemn property for redevelopment purposes.  On April 13, 2010, voters will decide the issue by ratifying or rejecting City Ordinance 1304, but for now, the measure has triggered some colorful debate. 

On February 27, Susan Henderson offered a Mountain View News article "Eminent Domain Measure -- Yes or No?"  She purports to analyze the measure in the broader context of recent eminent-domain-reform efforts, including California's Proposition 99, passed in 2008 in the wake of the U.S. Supreme Court's much-maligned 2005 Kelo decision.  She ultimately concludes that the measure is irrelevant, and amounts to mere political "grandstanding" by Sierra Madre's Mayor MaryAnn MacGillivray.

On March 1, "Eric Maundry," aka City Council candidate John Crawford, responded in a Sierra Madre Tattler piece entitled "Has The Mountain Views News Come Down On The Side Of Eminent Domain?"  In addition to several somewhat silly attacks on Ms. Henderson and her analysis, Mr. "Maundry" contends that the measure has real teeth, prohibiting the City from all eminent domain for redevelopment purposes -- i.e., eminent domain where the goal is to turn the condemned property over to another private owner for redevelopment. 

The dispute appears to be part of a larger political controversy in Sierra Madre, where an ongoing debate over growth issues has apparently become the cornerstone of the upcoming election.  I'm smart enough to stay out of that larger debate, but I do want to comment on the eminent domain issue.

As to eminent domain and the impact of Ordinance 1304, I have to side with Mr. "Maundry."  The ordinance goes well beyond the limited restrictions Proposition 99 offers state-wide, and should, if approved, create a real barrier against eminent domain for redevelopment purposes.  Especially with respect to businesses, no current federal or state prohibition exists on condemning property for redevelopment purposes, as long as the condemning agency makes proper blight findings.  Ordinance 1304 would change that, at least in Sierra Madre.   

Is prohibiting all eminent domain for redevelopment purposes a good thing?  I'll leave that to Sierra Madre residents to decide on April 13. 

False Fear of Eminent Domain Claimed to Impact Property Value

The City of Placentia has a large redevelopment area, and ambitious plans to redevelop an industrial neighborhood in south Placentia.  But the City has responded to the outrage over eminent domain and, in particular, eminent domain for redevelopment purposes.  The City apparently has no power to condemn property for private redevelopment. 

Yet, this lack of authority has not stopped some property owners in the redevelopment area from complaining that the "threat" of eminent domain has decimated their property's value.  According to a February 17 Orange County Register article by Adam Townsend, "Businessman: City plans could scare land buyers," at least one owner complained to the City Council on Tuesday that "stymied redevelopment plans and past mentions of eminent domain by city officials have decimated the industrial real estate market in south Placentia." 

Mayor Joe Aguirre responded:

"I just want to make clear that I was at the forefront of opposing eminent domain for [re]development." Aguirre said. "This city does not have that power, and we're not attempting to get that power."

The City believes that the hope of future redevelopment (presumably accomplished without the use of eminent domain) actually enhances the value of properties in the redevelopment area, and that the downturn in the real estate market -- not any "threat" of eminent domain -- is to blame for any problems owners are facing. 

Which side is right?  Probably both.  On the one hand, the public is in such fear of eminent domain these days that the mere mention of redevelopment plans and a redevelopment area is likely to evoke images of Mrs. Kelo's quaint pink house being run over by a bulldozer.  This could impact at least some market participants, regardless of whether that ever happened (it didn't; the house is now a historic building) or whether there is any real risk of it happening in Placentia (apparently, there isn't).

On the other hand, if the area truly does suffer from blight, the hope that it may someday be redeveloped to a better use may well have a positive impact on other market participants. 

In the meantime, getting beyond the current economic crisis and seeing real estate prices rising should help, regardless of which of the two competing forces one believes is really at play. 

Because its Project Description Changed, Long Beach Will Reconsider Eminent Domain for PCH Road Widening

We reported back in October that the Long Beach City Council approved the use of eminent domain to acquire nearly 10,000 square feet of property to widen Pacific Coast Highway.  Now in February, the City Council is once again considering the issue.  So why, nearly four months later, is the issue back before the City Council?  According to a recent Costa Costa Times article, the reason is because the project description has changed.

Back in the "pre-Kelo" era, agencies would routinely proceed with planned eminent domain despite minor changes to the project description.  However, with recent procedural reforms and greater public scrutiny of eminent domain, Long Beach has correctly determined that taking a step back is a wise move here. 

While the public hearing procedure can be burdensome and time consuming, a public agency that proceeds with eminent domain using a resolution of necessity that does not match what the agency needs to acquire is at great risk.  Sometimes, even now, the agency will get away with changing the project description without adopting a new resolution of necessity, but for a saavy property owner, such a misstep can provide leverage for a right-to-take challenge that could significantly delay -- or even defeat -- a project.  By going back through its administrative process, Long Beach should avoid such a challenge, which could mean that its "delay" actually gets the project built faster. 

This is a good opportunity to point out how important it is for public agencies (1) to work with their engineers and planners to ensure the project description is perfect the first time around, and (2) to allow for sufficient time in case project details do change.  If the agency is facing tight project deadlines, especially when funding is at risk, changing the project description or take area could mean starting from scratch:  a new appraisal; a new offer and negotiation process with the property owner; and a new hearing on a resolution of necessity.

Response to Professor Kanner About Avatar

Yesterday, Professor Gideon Kanner, a well-known eminent domain scholar, wrote a critique of my post about Avatar on his "Gideon's Trumpet" blog.  It is an interesting response, in that it spans two full pages of printed text, and his fundamental point seems to be that he agrees with my premise that Avatar is not a film about eminent domain.  

How, then, does he spend two pages responding to my January 26 post, "Is Avatar Really a Political Commentary on Eminent Domain Abuse?"  Well, he begins by "trumpeting" the fact that he writes from an "unabashedly property-owner oriented" perspective, and proceeds to explain that I apparently write from a "condemnor-oriented" perspective -- which he is kind enough to concede is my right. 

Unfortunately, his "unabashedly property-owner oriented" perspective -- coupled with his years in academia, rather than as a full-time eminent domain attorney -- may be clouding his vision a bit. 

First, let me say that I do not view eminent domain from a "condemnor's" perspective.  Yes, a large part of my practice over the years has been representing condemning agencies.  And I am admittedly proud of the work I have done to help build desperately needed roads, schools, and other infrastructure projects.  However, the majority of my eminent domain practice has been on the property owner's (and business owner's) side, and this continues to be a key focus of my practice. 

Second, while Professor Kanner takes issue with each of my four premises, he does so in a way that can only be described as, well, academic.  To summarize the issues:

  1. Professor Kanner disputes my claim that eminent domain is conducted by the government, not by private companies (as happens in Avatar).   He even cites a 55-year old case that apparently says anyone can condemn property.  Is he right?  As a technical matter, yes.  In the real world, however, eminent domain is almost always conducted by a governmental entity, and Professor's Kanner's need to resort to a 55-year old case to prove otherwise demonstrates that.  And, tellingly, Professor Kanner apparently missed the part of my post in which I stated that private companies sometimes do have the right to condemn.  (This is odd, as I thought my reference to Disney's eminent domain power in Florida was a colorful, interesting example -- yet he somehow missed it.) 
  2. Next, Professor Kanner takes issue with my supposed claim that mineral extraction is not a public use.   Again, he cites some cases showing this is wrong -- this time, stretching all the way back to a 1606 case from jolly old England.  Oddly, however, when I read my post, it doesn't appear to say that mineral extraction cannot qualify as a public use; it says that the mineral extraction in the movie was not portrayed as a public use.  Rather, the company in Avatar was unequivocal in its position that it was seeking the "unobtanium" purely for private profit.  I'll concede that Professor Kanner may have missed this point simply because he has admittedly not seen the film, but I'm still having trouble equating a 1606 case with what took place in the movie.
  3. Professor Kanner then moves on to question my premise that eminent domain cases in California are initiated with the adoption of a resolution of necessity.   This time, he's pretty sure he has me, explaining that the government always has the option simply to seize property, forcing the property owner to sue in inverse condemnation.  I'm pretty sure he's right about this one, since he uses a fancy Latin phrase, "In haec verba," to prove his point (someday, I'll have to look that one up).  Again, however, Professor Kanner reveals his academic perspective.  This simply isn't the way things happen in the ordinary course.  Government agencies do not routinely seize property without offering compensation.   If they did, they would always be charged with paying attorneys' fees to the other side and, more importantly, the public outrage over such behavior would make the response to Kelo seem like a celebration of the right to condemn.   
  4. Finally, Professor Kanner takes issue with my claim that in eminent domain, the condemnor must pay just compensation, explaining that the concept is "slippery as an eel," which presumably means that he does not think property owners receive enough money.  This time, he must be right, since he even has a recent 2009 case to back him up.  Of course, ensuring that property owners are fairly compensated is what most eminent domain cases are all about, and it is what I have spent much of my career trying to accomplish.  And, even when the condemning agency "wins," it still doesn't seem quite the same as sending in massive gunships to blow up the property with the owners still in it.  

In the end, I suspect Professor Kanner is poking fun at me a bit, much like this response pokes fun at him.  Ultimately, our true positions likely are not too far apart, though I imagine his one-sided perspective does cause him to come down at a more extreme place than my more moderate perspective allows.  Still, we can agree that (1) Avatar is not an eminent domain film, and (2) that when eminent domain does occur, our legal system should take care to ensure that property owners are fairly compensated -- and that they do not bear an unfair share of the cost of an infrastructure project designed to benefit the public as a whole. 

And, just to ensure there are no hard feelings, I have sent Professor Kanner passes to see Avatar for himself (in 3-D, on the IMAX, no less), and I hope he enjoys the film for what it is -- not what it is not.  

Is Avatar Really a Political Commentary on Eminent Domain Abuse?

A few weeks ago, my wife and I went to see Avatar.  With two young kids, we rarely see movies in the theaters, and we picked this one based on its advertised special effects, not any belief that it was the "best" movie among our choices.  

As I watched, I never really thought of it as an expression of outrage over eminent domain abuse.  Looking around the Internet, however, the movie seems to have been picked up by eminent domain reformists as a big budget example of eminent domain gone bad.  But is it, really?  Let's look at some facts:

  1. The "acquisition" was being handled by a private company, not any government agency.  Yes, sometimes eminent domain is pursued on behalf of private companies (typically, in the redevelopment context), but rarely does a private company itself have such power -- though there are a few notable exceptions (for a big one, explore the chain of events that sent Walt Disney to Florida for his "new" theme park decades ago);
  2. There was no pretense of "public use."  The fundamental premise was that the "unobtanium" being sought was worth $20 million per kilogram, meaning the company would pursue it at virtually any cost -- including decimation of the Na'vi village. 
  3. There was no established right to take.   Fundamentally, the movie did not involve a government's adoption of a resolution of necessity establishing a right to take the property.  Instead, it represented blatant imperialism:  we will take what we want because we can.
  4. There was no payment of just compensation.  Maybe I missed something (it was a really long movie), but I don't remember the company appraising the property and paying for it at fair market value. 

In the end, the movie may resonate with eminent domain critics, and it certainly contains the themes found in modern-day "eminent domain abuse" cases.  But it does not reflect how eminent domain really occurs. 

This hasn't stopped it from being used with increasing frequency in the campaign against eminent domain.  In early January, New York eminent domain attorney Michael Rikon, speaking at a New York Senate Committee hearing on eminent domain abuse, directly compared Avatar to current New York eminent domain practices:  "this is how eminent domain works in New York."   

An article by David Boaz in today's Los Angeles Times, "The right has 'Avatar' wrong," takes the position that conservatives -- who have typically derided Avatar's "liberal" themes -- miss the movie's main point:  "what they have missed is that the essential conflict in the story is a battle over property rights."  Mr. Boaz sums it up as follows;

"Avatar" is like a space opera of the Kelo case, which went to the Supreme Court in 2005. Peaceful people defend their property against outsiders who want it and who have vastly more power. 

I'm still not convinced the movie speaks to me as an eminent domain lawyer.  But I will say this:  if eminent domain opponents can convince the public that real world eminent domain mirrors James Cameron's fantasy world, the reform movement may continue its post-Kelo momentum for longer than I have otherwise predicted.   And, in places like New York -- where, unlike California, eminent domain reform efforts continue to move forward -- this may well be the case. 

As for the movie itself:  the effects were indeed spectacular, though the plot was predictably predictable. 

Further Evidence that Stimulus Dollars May Drive Eminent Domain Growth -- But is That a Bad Thing?

The public outcry over eminent domain continues.  Claims of "eminent domain abuse" fill today's popular media; a January 21 article by Steve Cook, Eminent Domain is Alive and Well, claims 2 in 3 Americans oppose eminent domain. 

What so often gets lost in the shuffle is that most of the outrage focuses on a narrow aspect of eminent domain:  redevelopment efforts that involve condemning private property and transferring it to another private owner.   This is what sparked debate in the Kelo case, and it is making major headlines in New York, where the "Atlantic Yards" drama involves plans to build a new stadium for the New Jersey Nets basketball team in Brooklyn (there's an entire blog devoted to the Atlantic Yards saga). 

But let's not forget that a large portion of the eminent domain that occurs involves traditional infrastructure projects:  roads; rail lines; utilities; etc.  And while voluntary acquisitions for such projects may be preferable, where that is not possible, eminent domain makes the difference between having new (or improved) infrastructure and not having it.   Would 2 in 3 Americans really oppose eminent domain in those situations?

In Mr. Cook's article, he claims that "there are indications that as stimulus funds make their way to the state and local levels, more property than ever may be at risk."  To me, this frames the issue incorrectly.   California, in particular, is in dire need of infrastructure improvements. 

If stimulus dollars help bring some of those improvements to reality -- and it appears that is happening -- we should view that as good news.  Some property will be condemned in the process.  However, as long as the condemning agencies treat owners fairly and pay just compensation, I simply can't see using stimulus dollars in this manner as "eminent domain abuse." 

In the end, I continue to believe that the real focus of eminent domain commentators should be on ensuring fair compensation for both property owners and business owners facing eminent domain -- not on attacking eminent domain itself.   And, especially in cash-strapped California, if federal stimulus dollars can get some much-needed projects postponed by our state budget crisis back on track, we should be happy, not outraged. 

2009 Eminent Domain Year in Review

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:

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.

City of Rosemead's Strategic Plan Calls for Renewed Eminent Domain Authority

The City of Rosemead has a vision of its future that transforms the city into "a small town in the heart of a metropolis."  That, according to San Gabriel Valley Tribune reporter Rebecca Kimitch, is the goal of the city's new strategic plan.  Ms. Kimitch's article, "Rosemead defines itself as small town in the big city," explains:

The to-do list is ambitious: landscape medians and plant trees along sidewalks; demolish dilapidated vacant buildings; develop new neighborhood parks; remove graffiti; expand community classes and develop a community computer lab; create a civic center at City Hall and the surrounding city facilities.

To accomplish its ambitious goals, the City plans to reinstate its power of eminent domain -- at least with respect to commercial properties -- in its "redevelopment project area 1."  That redevleopment area was adopted initially in 1972, and it consists of more than 500 acres located generally along the Garvey Avenue and San Gabriel Boulevard corridors. 

As is often the case in the current political climate, the City apparently has no immediate plans to wield its newly reinstated eminent domain authority, but believes that having the power to condemn is key to the plan's success:  "City officials say they need the power as a negotiating tool to redevelop blighted areas of the city."

Time will tell whether Rosemead realizes its vision of the future -- and whether Rosemead resorts to condemnation in an effot to make that vision a reality. 

City of Vista May File Eminent Domain Action to Assemble Auto Mall

Everyone knows the sad tale of America's automotive industry:  companies operating only through government subsidies and dealerships shutting their doors across the country.  So when the City of Vista came up with a plan to "create a second downtown car dealership and boost sales tax revenue," one would think the public would embrace it. 

But like many bold plans, this one has a wrinkle.  While most of the property needed to facilitate the plan is available for purchase, including the existing North County Ford site, one additional parcel is needed.  

According to North County Times reporter Cigi Ross, in her December 5 article, "VISTA: City plans to buy North County Ford property,"  the plan requires the acquisition of the Riviera Motel, whose owner does not want to sell.  In fact,

[the owner] accused the city of trying to steal his land and give it to the rich.

Last month, we told you the City was seeking to purchase the motel property.  Having apparently failed in those efforts, the City Council plans to vote today on whether to proceed with the purchase of the other properties needed at a cost of around $15 million -- and on "whether to try to seize the motel through eminent domain."  

For anyone who thinks this is just the kind of thing the post-Kelo eminent domain reform was designed to protect against, it is worth noting that California's primary reform act -- 2008's Proposition 99 -- deals only with protecting certain single-family residences.  Assuming the City of Vista demonstrates that the public interest and necessity require the project -- and that the motel property is necessary for that project -- it is unlkely any significant barriers will exist to the City's exercise of eminent domain to acquire the property should the City choose to proceed.

Next Chapter Commences in Marina Towers Eminent Domain Saga

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

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

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

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

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

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

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

We'll let you know what ultimately happens. 

Kelo aftermath continues as Pfizer sets to close New London plant

The impetus for one of the most infamous eminent domain cases in U.S. history was the City of New London, Connecticut's efforts to utilize a massive Pfizer plant as the basis to revitalize the surrounding area.   (The common myth that Pfizer was itself the intended beneficiary of the Kelo property is not correct.) 

The decision, Kelo v. City of New London, triggered a nationwide backlash against eminent domain when the Supreme Court ruled that economic growth, by itself, qualifies as a public purpose sufficient to satisy the right to take property by eminent domain.

The tale of what followed around the county has been well documented.  Many states passed eminent domain reform in the wake of the Kelo decision.  Less well known is the story of what happend to the "little pink house" at the center of the controversy.  Recently, we reported that the area has not been revitilized as the City of New London imagined

Now, another turn of events suggests the revitiliztion may be nothing more than a pipe dream.  Today, Pfizer announced that it is shutting down its 1,400-employee New London facility, creating real doubt that new development is anywhere on the horizon.  In short, leaving aside the debate about the wisdom of the Supreme Court ruling, the Kelo story and its aftermath certainly doesn't seem headed for a happy ending any time soon. 

Photo credit: Historic Buildings of Connecticut

As reported by Timothy P. Carney, a columnist for the Washington Examiner, in his November 9 story "Pfizer abandons site of infamous Kelo eminent domain taking":

The private homes that New London, Conn., took away from Suzette Kelo and her neighbors have been torn down. Their former site is a wasteland of fields of weeds, a monument to the power of eminent domain.

But now Pfizer, the drug company whose neighboring research facility had been the original cause of the homes' seizure, has just announced that it is closing up shop in New London. 

In a November 9 article, "Pfizer To Close New London Headquarters," Hartford Courant reporter Eric Gershon summarizes the decision:

Pfizer Inc. will shut down its massive New London research and development headquarters and transfer most of the 1,400 people working there to Groton, the pharmaceutical giant said Monday.

In the end, while the owners have all been paid for property they never wanted to sell, the City has not realized the economic  windfall it had in mind when it started down this path a decade ago.  Thus, even if the Supreme Court it right -- and economic development justifies eminent domain -- the public benefit may still be a long way off for residents of New London.  Indeed, with the Pfizer plant's closure, things may well get worse before they get better.

City of Vista Seeking to Acquire Motel Property for Redevelopment Project

 In an October 31 article for the North County Times, "VISTA: City wants to redevelop motel property," reporter Cigi Ross writes about the City of Vista's plans to acquire a motel property as part of a plan to redevelop the area:

The owner of a downtown Vista motel is accusing the city of trying to kick him out of his business and his home.

City officials announced Monday they're trying to purchase the Vista Riviera Motel as part of a redevelopment project along Vista Village Drive and Vista Way that could include a new car dealership. 

While the City's efforts currently involve a voluntary acquisition, the owner has already said that he does not want to sell, raising the possibility that the City could acquire the property through eminent domain.   Though this situation raises the specter of the often criticized Kelo decision, the situation is different, in that Vista's stated motivation in acquiring the property is to eliminate blight, a motivation missing in the Kelo case

Ms. Ross' article explains:

The land is prime real estate because Vista Village Drive is a main thoroughfare that cuts through the center of Vista and is used by an estimated 40,000 motorists every day.

Over the past few years, the city has spent at least $3 million to purchase properties in the downtown corridor as part of a long-term plan to spur economic development. Most recently, the City Council approved spending about $1.25 million on two sites near South Santa Fe Avenue.

Those properties, as well as the Vista Riviera Motel, lie within an expanded redevelopment zone that was created in 2008 when Vista's City Council approved an updated redevelopment plan.

That redevelopment plan says the city can use eminent domain ---- take properties for public use ---- in part to eliminate "blight." The city defines economic blight as properties with high crime rates, high vacancy or low lease rates, stagnant or declining property values or unsafe and unhealthy buildings. 

Tim Sandefur, an attorney with the Pacific Legal Foundation and a well known property rights advocate, was quoted, explaining why the property owner would likely have little success fighting any effort by Vista to condemn his property:

One argument has been that it's wrong to take property from one business owner so another can develop the site. But Proposition 99, a ballot measure passed in 2008, expanded municipalities' power of eminent domain by allowing that kind of redevelopment, Sandefur said.

That measure followed a 2005 Supreme Court ruling that said local governments could force property owners to sell off their land to make way for private economic developments even if the property isn't blighted.

"It was possible until recently to say, 'No, there are limits on that,'" Sandefur said. "Redevelopment is now defined as a public use in the state constitution.

"Unfortunately property owners have virtually no protection against eminent domain in California until the state constitution is amended," he said. 

Only time will tell how badly Vista really wants this property.  If the owner maintains his steadfast refusal to sell, eminent domain will be the only option.  But in the wake of Kelo, the use of eminent domain for redevelopment purposes is subject to considerable -- and generally unfavorable -- public scrutiny. 

Power Struggle Developing Over Who Can Sell Power

One of the oddities of California's public utility system is that private companies own and operate many of them, yet they behave very much like governmental entities, especially when it comes to eminent domain.  Major examples include Southern California Edison and Pacific Gas & Electric ("PG&E"); both are private companies functioning as public utilities, delivering electricity to their constituents, and both are overseen by the Public Utilities Commission

Occasionally, an actual governmental entity will seek to replace the private utility company.  Such is the case with the South San Joaquin Irrigation District ("SSJID"), which is exploring the option of acquiring some PG&E facilities in an effort to reduce the cost of providing electricity to customers in Manteca, Ripon, and Escalon.  According to Manteca Bulletin Managing Editor Dennis Wyatt, in his October 26 article "LAFCO legal study key to SSJID:  May decide who powers South County economy," SSJID is seeking to acquire PG&E's power infrastructure in the area for $79.5 million, though PG&E claims its facilities are worth more than $300 million. 

One of the key issues in the dispute is whether SSJID can -- or should -- exercise the power of eminent domain to condemn PG&E's facilities if the parties cannot reach an amicable agreement.  Mr. Wyatt's article also notes that SSJID has focused some attention on the irony of PG&E objecting to the use of eminent domain:

The SSJID has said if eminent domain does become an issue it will only be between the district and PG&E. The SSJID also notes PG&E uses eminent domain to take property it wants for everything from power lines to substations when people do not want to sell.

The matter is likely to go before the San Joaquin County Local Agency Formation Commission sometime in Spring 2010.  If the Commission decides that SSJID has the authority to enter the retail power business, the real battle between SSJID and PG&E may ensue, and eminent domain attorneys may find themselves at the heart of the battle.   

Should Agencies Use Two Different Appraisers in an Eminent Domain Case?

Yesterday's IRWA Chapter 1 seminar in Los Angeles was a great success, with an outstanding panel of speakers.  The morning started with an informative presentation by Dave Guder of Southern California Edison about the Tehachapi Renewable Transmission Project and renewable energy sources in general. 

The liveliest discussion, however, centered around a narrow issue that triggered some surprisingly animated responses.  The issue involved a condemning agency's use of one appraiser for the initial eminent domain offer and deposit of probable compensation, and another appraiser as the trial appraiser.  More specifically, the discussion focused on whether agencies should be allowed to use this tactic, and whether use of a second appraiser should insulate the agency's first appraiser/appraisal from discovery -- and, ultimately, from admission at the trial on compensation. 

While both "sides" articulated good points, in my opinion, the discussion missed a couple of important things.  First, from an agency perspective, current "best practices" involve using a different appraiser for the trial than the agency used for the offer and deposit in almost every case.  The law allows this, and doing so renders the initial appraisal inadmissible at the trial on compensation. 

No reason exists for an agency to expose its initial appraisal to cross examination, when the trial appraisal will almost always be different.  The mere passage of time, along with the litigation discovery process, will generate information that warrants changes in the appraisal, and a talented landowner lawyer will be able to exploit any such changes at trial, even if the changes are easily explainable -- and even if the changes do not change the appraiser's ultimate conclusion of value.  The agency should not put itself in the position of defending both its trial appraisal and an out of date, initial appraisal. 

Second, regardless of the agency's plans for its trial appraisal, it is not at all clear that the initial appraisal can be insulated from discovery.  The new rules on prejudgment possession [pdf] create the very real possibility of judicial scrutiny of the offer process which, by necessity, may result in scrutiny of the agency's initial appraisal. 

Thus, while that early appraisal can be rendered inadmissible in the trial on compensation issues by changing appraisers, appraisers would be well served to keep in mind that even those preliminary appraisals may be scrutinized if the landowner raises right-to-take challenges or fights an order of possession.  This risk that a poor initial appraisal may impact possession should provide agencies with ample incentive to do what they can to "get it right" the first time, even if they plan to switch to a different appraiser for trial. 

The discussion that did occur at the seminar was also illuminating.  From the "agency" perspective, the view generally was that the use of a new appraiser for trial is appropriate and reflects a sound practice, as the initial appraisal is often done:

  1. On a compressed schedule;
  2. With a limited budget; and
  3. With incomplete information.

In other words, the agency representatives defended the practice of switching appraisers and, more importantly, the rule that the initial appraisal is not admissible at trial where the agency does change.

From the "landowner" perspective, the view was that agencies should be encouraged to hire good appraisers to get detailed, accurate appraisals at the front end, and that agencies should not be permitted to insulate a "bad" initial appraisal from discovery simply by changing appraisers mid-stream.  There was also the suggestion that where the appraiser changes his or her analysis from the initial appraisal to the trial appraisal, the appraiser should be forced to defend those changes in court. 

One other point not discussed yesterday was that some very good technical appraisers are not viable trial appraisers, either because they lack the demeanor and temperament to be a trial witness, because they lack sufficient experience to qualify as an expert witness in court, or because they simply don't want to do that type of work.  If agencies were forced to use a single appraiser, this would exclude many high quality appraisers from the process.  And, from an economic standpoint, do we really want agencies to pay the top dollar that the best trial appraisers charge for all appraisal work, even they can find an equally competent, but less expensive, appraiser for the initial appraiser work?