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

We recently wrapped up assisting with the acquisition of several part-takes of commercial and residential properties for a public transit project.  One of the big issues involved with each of the acquisitions centered on whether the project provided the impacted properties with benefits that would offset the potential severance damages.

By way of background, when only a portion of property is acquired through the use of eminent domain, the acquiring entity is required to pay not only for the portion of the property acquired, but also for any decline in value the remainder property suffers as a result of the property's severance (i.e., "severance damages"), along with any damage caused by the construction and use of the project.  (Code Civ. Proc., secs. 1263.410 - 1263.430.)  However, these severance damages are to be offset against any benefits the remainder property receives as a result of the project.

For example, while properties located next to a public transit project arguably could suffer some decline in value as a result of the project's impacts (such as impacts from noise and vibrations), do those properties also receive some benefit from being located near a public transit project? 

According to at least one new study published in Realtor Magazine, the demand for homes near public transit continues to increase as more and more people want properties that boast easy access to public transportation.  Another report by NPR suggests that public transit projects, such as light rail, are taking off; and property owners -- both residential and commercial -- are selecting sites based on locational proximity to public transit. 

While every case will be different, as public transportation becomes more and more popular in California, real estate appraisers are likely going to find increased project benefits when public transit projects require the acquisition of only portions of properties.

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The California Court of Appeal issued an interesting unpublished decision yesterday addressing a number of eminent domain issues, ranging from right to take challenges, entitlement to goodwill, severance damages, and jury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.

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The City of Newport Beach is working on a plan to widen Jamboree Boulevard adjacent to State Route 73 (the northern end of the San Joaquin Hills Toll Road).   The city has acquired much of the property needed for the larger right-of-way, but has not been able to reach agreement with the owner of the Back Bay Court shopping center.   On Tuesday night, the city authorized proceeding with an eminent domain action to acquire the property.

According to a June 9 Orange County Register article by Jeff Overley, "City OKs using eminent domain on mini-mall":

The property is about one-tenth of an acre and consists of a narrow greenbelt that separates Jamboree and a shopping center parking lot.

This description provides good insights about why the city must resort to eminent domain.  From the city's perspective, it is acquiring only a small sliver of landscaping; it is not touching the buildings -- or even the parking lot.  The city presumably believes its $452,000 offer is more than fair for such a minor event. 

So what's the big deal?  From the property owner's perspective, the taking of that small strip of land may have dire consequences.  It may cause the shopping center property to exist as a legal, non-conforming use if the removal of the greenbelt cause the center to fall short of required set-backs.  While not an immediate problem, this could be an issue if someone wants to redevelop the property down the road. 

And, according to the owner's attorney, the "sliver" includes more than landscaping.  The city's project may also eliminate the center's main monument sign and involve construction of a view-limiting retaining wall, very big deals for the tenants.  

Finally, even a small taking can give rise to substantial severance damages if the construction of the project impacts access to the center for any extended period of time.  If the owner loses tenants as a result of the project, it may take a long time to replace them in the current market.  This could mean big losses, for which the owner will presumably want compensation.  

Like most eminent domain cases, this one will probably settle, but it may take time before the city and the owner see eye-to-eye on the scope of the project and its impacts on the center.  Often, these cases settle only after the construction has been completed, giving both sides a better sense of the actual impacts the project and its construction have on the center. 

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According to a San Diego Union Tribune article,"City ready to acquire land to widen Plaza Boulevard," National City has adopted resolutions of necessity in order to use eminent domain for the widening of a 1.1-mile stretch of Plaza Boulevard.  37 properties are impacted, although the City has reached agreements with a majority of the property owners.

The expansion project will widen Plaza Boulevard from four to six lanes between Highland Avenue and Euclid Avenue, including a section under the 805 freeway.  The City says widening its busiest commercial corridor will improve safety, increase traffic capacity, reduce congestion, and beautify the boulevard.

The impacted property owners are faced with giving up temporary construction easements, along with portions of their property permanently.  According to the article, however, the owners are more concerned with the construction impacts, such as the project's elimination of a left-hand turn lane in front of a business.  When there is an acquisition through eminent domain, these types of impacts are typically compensated through severance damages to the property owner and business goodwill losses to any business operating on the property.

Interestingly, like we've reported in the past, the City's urgency to begin using eminent domain is once again fueled by the need to pursue stimulus dollars this summer, as the federal government is paying for 80 percent of the project's cost.

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We've previously reported on some of the major renewable energy projects currently underway, such as Southern California Edison's Tehachapi Renewable Energy Transmission Line Project and GE's plans to design the largest wind farm in the world.  After a major planning effort, it appears that another renewable energy project -- the Sunrise Powerlink project -- may be moving forward as well.  

According to a March 7 San Diego Union Tribune article by Onell Soto, the 123-mile, $1.88 billion Sunrise Powerlink project has obtained approval from the Public Utilities Commission and the Bureau of Federal Land Management, but is still waiting approval from the U.S. Forest Service.  The project is also facing challenges by the County of San Diego. 

Despite those challenges, property acquisitions for the project have commenced.  In addition to several voluntary acquisitions, eminent domain actions to acquire some of the necessary property for the transmission line right-of-way are underway.  (For those wondering, private utility companies typically have the power of eminent domain for public projects.)  Filing the eminent domain actions now is likely necessary in order to obtain possession of the impacted properties in order to meet the project's construction timeline (construction is scheduled to begin this summer).

The eminent domain process is necessary when a condemning agency and the property owner cannot agree on an acquisition price.  For projects like the Sunrise Powerlink project, disputes over "fair market value" typically involve how the high-voltage transmission lines will impact the remainder of the owner's property, not necessarily the value of the right of way being acquired.  

In some instances, a power line's transversing a parcel arguably leaves the remaing property with no remaining economic value, generating significant "severance damages."  Not surprisingly, cases involving such severance damages often involve a wide range of opinions among eminent domain attorneys and appraisers.  

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In February 2009, the city of American Canyon filed an eminent domain lawsuit in Napa County Superior Court to acquire vacant property on which the city intended to build two water storage tanks.  According to a Napa Valley Register article, "AmCan settles deal for water tank property," the city has now settled the lawsuit for $542,909.  In return, the city obtained 3.2 acres of unimproved land and an additional four acres for permanent and temporary easements.

It appears that the settlement was prompted by the court's recent ruling that the property owner was not entitled to severance damages to the owner's remaining 100-acres of property not being condemned by the city.  The court reasoned that "the construction and use of the water tank project did not cause the economic damages claimed by [the owner]."  As part of the settlement, the city has agreed to provide the owner with water and sewer services, potentially a major savings for the owner's planned residential development.

The city obtained prejudgment possession of the property early in the lawsuit, and construction of the first water tank is nearing completion.  The city, however, has been unable to find funds to pay for the second storage tank.  The second tank will eventually be connected to a high-pressure tank on a 313-acre preserve the Napa Valley Unified School District purchased several years ago.

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According to Visalia Times Delta reporter Valerie Gibbons, in her October 20 article "Tulare County now wants 11 more parcels on Road 80," Tulare County is moving forward with condemnation plans for 11 properties in order to widen Road 80:

The county has been trying to acquire properties — many of which are in 40- to-60-foot-wide strips, and about a mile in length — since the beginning of 2008. Eighty-five other property owners along the route have reached sale-price settlements.

The widening project, designed to ease congestion between Dinuba and Visalia, has been planned for years.  According to Sarah Jimenez of the Fresno Bee, funds for right-of-way acquisitions were secured in 2006.  Regardless of the traffic problems the project is designed to alleviate, the County's decision to use eminent domain to acquire the final few properties along the right-of-way, is generating considerable controversy.      

According to an October 22 article in the Porterville Recorder,"11 more parcels grabbed for Road 80 project," the County is not taking the decision to use eminent domain lightly:

“It’s a difficult decision to make, but the necessity is there,” Supervisor, Dist. 2, Pete Vander Poel said.

County staff argued that without these parcels the Road 80 Project would be incomplete. The undertaking consists of widening Road 80 from two lanes to four lanes and creating a dividing center median from Goshen Avenue in Visalia to Avenue 416 in Dinuba that will improve traffic flow, alleviate flooding and improve access to Dinuba.

Based on the recent articles, it appears the disputes center not on the need for the project, whether the County should acquire it, or what the County is wiling to pay for the land it is acquiring.  Instead, it appears that owners are concerned largely with severance damages and loss of business goodwill that they believe the project will cause.  Of particular concern to some dairy farmers is that the loss of land will purportedly impact the number of cattle they may have on their remaining property, based on restrictions imposed by state waste-water treatment regulations.

It appears from its published Agenda for its October 27 meeting [PDF] that Tulare County may decide then whether it will expand the scope of the takings to include additional parcels (Ms. Gibbons' article indicates that three additional parcels are being considered).   

Notably, even as it moves towards filing condemnation actions, the County intends to continue negotiations to acquire the properties voluntarily.  In fact, the County reports that it recently began negotiating directly with the remaining owners in response to complaints that the relocation consultants the County hired were not adequately reponding to owners' concerns. 

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