Video: Artin Shaverdian on Abandonments and Narrowing the Scope of the Taking

We are pleased to provide the next installment of our video series from Nossaman’s 2019 Eminent Domain Seminars.  In this segment, Eminent Domain Partner Artin Shaverdian discusses best practices when abandoning take areas and narrowing project scope.

Please access the video here.

 

California Supreme Court Hears First Inverse Condemnation Case in Years

On June 5, 2019, the California Supreme Court (“Court”) heard oral argument in the case City of Oroville v. Superior Court of Butte County, Case No. S243247 (“Oroville Case”). This case is notable because it is the first time that the Court is weighing in on a significant case concerning the doctrine of inverse condemnation since Bunch v. Coachella Valley Water District, 15 Cal.4th 432 (1997).

The inverse condemnation case law has developed considerably in the more than two decades since Bunch, although this has largely occurred only at the Court of Appeal level. Most recently, inverse condemnation has been thrusted into the spotlight as liability under that doctrine has featured prominently in the context of catastrophic wildfires.

In this case, the Court of Appeal Third Appellate District held that the petitioner City of Oroville(“City”) was liable in inverse condemnation for a sewage backup into private property even though the owners failed to install and maintain backwater valves on their private property as required by state and local legal authority. City of Oroville v. Superior Court, 2017 WL 2554447 (Cal. Ct. App. 2017). Continue Reading

Video: Brad Kuhn on the Importance of Litigation Holds in Eminent Domain Cases

We are pleased to provide the next installment of our video series from Nossaman’s 2019 Eminent Domain Seminars.  In this segment, Eminent Domain Practice Group Chair Brad Kuhn discusses the components of the litigation hold.

Please access the video here.

 

Crafting Settlement Agreements in Eminent Domain

Like the vast majority of general civil litigation, eminent domain matters usually settle before going to trial.  The resolution is typically documented in either a stipulated judgment or a settlement agreement.  What is unique to eminent domain, however, is that the settlements oftentimes take place before the public project is fully constructed, meaning the parties are resolving their claims based on the “project as proposed,” without seeing the actual finished product or fully understanding its impacts on the property.  In documenting a settlement, property owners can sometimes attempt to retain certain rights to seek additional damages, but a recent court of appeal decision, Sani v. People ex rel. Dept. of Transportation, highlights the risks, uncertainties, and limitations of coming back after a settlement to seek additional compensation.

Background

In Sani, Caltrans was seeking to realign a section of Pacific Coast Highway in San Simeon to protect against coastal erosion (side note — see my blog post on sea level rise and impacts on takings).  Caltrans filed an eminent domain action to acquire portions of two residential lots owned by the Sanis (parcels 1 and 2); the Sanis then filed a cross-complaint for inverse condemnation for additional damages to easements in favor of a third residence they owned (parcel 3).

The parties settled the eminent domain and inverse condemnation action at mediation; Caltrans acquired all of parcels 1 and 2, subject to certain easements in favor of the Sanis, and agreed to use the property for “state highway purposes” and “any use” that did not interfere with the easements benefitting parcel 3.  Caltrans paid $6.44 million for the acquisition, along with all damages associated with the acquisition and the construction and use of the project, to “fully and finally resolve” the eminent domain and inverse condemnation actions.   The Sanis reserved the right to bring a “future claim in inverse condemnation for any alleged taking of or alleged diminution in value to [parcel 3] arising out of the project and construction of the project,” but waived any future claim against Caltrans based on any action done or right granted pursuant to the settlement.

A mere four months later, the Sanis filed a new inverse condemnation action against Caltrans; the complaint alleged Caltrans impacted the Sanis’ reserved easements, and post-settlement construction activities substantially interfered with parcel 3, resulting in additional damages totaling nearly $4 million.

At a bench trial, Caltrans presented evidence that the easements were not interfered with, and construction activities were typical and standard.  The court determined that the Sanis did not establish any compensable taking, as the prior settlement resolved all claims regarding the Sanis’ reserved easements, and the “minor inconveniences” to parcel 3 during construction did not give rise to the level of a taking.

The Court of Appeal

On Appeal, the Court walked through each of the Sanis’ new inverse condemnation claims:

  • Interference with Easements:  with respect to the Sanis’ claim that Caltrans’ project interfered with their easement rights, the Court concluded that the settlement agreement unambiguously barred such claims, as Caltrans acquired the original easements in favor of parcel 3, and only reserved limited rights to the Sanis.  Because those easement rights were previously acquired and settled, there can be no inverse condemnation of property rights that no longer exist.  While the settlement gave the Sanis the right to bring a claim for a taking of parcel 3, it was limited to one not based on “any action done or right granted” pursuant to the settlement.  The easement impacts were part of the original settlement.
  • Evidence of Diminution in Value:    with respect to the Sanis’ claim that the court improperly excluded evidence of the diminished value of parcel 3 even though the settlement allowed them to bring a claim based on “any alleged diminution in value,” the Court explained that such evidence was irrelevant unless the Sanis could first establish a taking.  “[I]n an inverse condemnation action, the property owner must first clear the hurdle of establishing that the public entity has, in fact, taken or damaged [their] property before [they] can reach the issue of ‘just compensation.'”  “Neither the mere existence of a public use or a diminution in the value of the plaintiff’s property establishes a compensable taking or damaging of the property.”  Because there was no taking, any diminution in value was irrelevant.
  • Post-Settlement Construction Activities:   with respect to the Sanis’ claim that Caltrans’ post-settlement construction activities (particularly noise, dust, interference with views, and a decline in rental income) constituted a new claim for inverse condemnation, the Court explained that “[t]emporary injury resulting from actual construction of public improvements is generally noncompensable” and “[p]ersonal inconvenience, annoyance, or discomfort in the use of property are not actionable types of injuries.”

Conclusion

The Sani case is an important reminder for property owners and public agencies to carefully document their settlement agreements or stipulated judgments.  If the parties intend to reserve certain claims, there needs to be clear statements to that effect.  If the parties are resolving an eminent domain action prior to construction of the project, they need to fully understand what the project entails, what future construction will look like, and how these activities may disrupt the use of the property in the future.

Nossaman is Taking Eminent Domain On the Road!

We welcome you to join our Partners at several upcoming presentations on eminent domain topics taking place near and far.

First, Nossaman’s Eminent Domain & Valuation Practice Group Chair Brad Kuhn will be presenting during Nossaman’s 2019 Land Use Seminar on May 21st, in Costa Mesa, CA.  Brad will be part of a discussion concerning the very timely topics of Managed Retreat and Sea Level Rise.  This is an area of great interest for both private landowners, cites and towns, and public agencies alike, and the presentation will provide an overview of the current proposals and challenges inherent in land use and ownership near the coast.

Next, at the upcoming California Water Association’s (CWA) 2019 Spring Conference on May 23, 2019, in Sacramento, Brad Kuhn will be speaking as part of a presentation concerning inverse condemnation.  Nearly 6 million people in California are served by regulated water utilities.  The California Water Association (CWA) represents the interests of these companies as they strive to provide safe, reliable, high-quality water and excellent customer service in a cost-effective manner.  CWA provides a forum for sharing best management practices, a means of promoting sound water policy by legislators and regulatory agencies, and opportunities for educating the public on protecting and efficiently using water resources.

Joining the International Right of Way Association (IRWA) at their 65th Annual International Education Conference, Brad then takes his Eminent Domain expertise on the road to Portland, Oregon.  Brad’s presentation will address “Easement Valuation — an Oxymoron?  Can Easements Actually be Valued, or Are We Throwing Darts?”  The session will take place on Monday, June 10th, at 8:30 a.m. PT, and the full four-day industry conference also will provide many additional educational and learning opportunities and networking events.

Finally, in July, Eminent Domain Partner Bernadette Duran-Brown travels to Cleveland, Ohio to participate in the Transportation Research Board’s (TRB) 58th Annual Workshop on Transportation Law.  Bernadette’s session will focus on “Right Of Way Best Practices in Light of Recent Trends and Developments in Eminent Domain and Land Use Law.”  Her panel will explore recent developments in eminent domain law, explain how these evolving rules can influence the timing and cost of right of way acquisition, and discuss best practices for keeping this changing legal landscape from derailing your project’s schedule and budget.  It will take place on Tuesday, July 23rd, from 1:30 p.m. – 3:00 p.m. EDT.

For additional information on these events, please consult Nossaman’s Events page here.  We hope to see some of you during our Eminent Domain group’s Spring educational opportunities.

Utilities Have the Right to Remove Trees Within an Easement

Many public agencies and utilities have easements for water or gas pipelines or electric transmission lines.  Those easements typically contain express rights to construct, operate, and maintain the facilities, including rights of access; but oftentimes the easements are silent on what rights are reserved to the private property owner, including whether the owner can place trees or other improvements within the easement area.  As utilities and public agencies are undertaking more thorough efforts to protect and maintain their rights-of-way, they are commonly seeking to remove such trees and improvements.  Absent express language in the easement, are such trees or improvements permitted, or can the agency/utility remove them?  A recent Court of Appeal decision, Inzana v. Turlock Irrigation District, provides guidance and indicates the easement holder has the right to remove such trees or improvements upon a showing of reasonable interference.

Background

In Inzana, the Turlock Irrigation District acquired an irrigation easement which granted “a right to construct, maintain, operate, and replace a pipeline and related structures,” including “the right to ingress and egress . . . for the purpose of operation, maintaining, repairing, and keeping the pipeline and related structures in operating condition.”  The property owner subsequently planted pistachio trees within the easement area.

Years later, relying on its own newly enacted internal rules prohibiting the placement of trees or other improvements within its easements, the District demanded that the property owner remove the pistachio trees, as growing tree roots could eventually impact the pipeline’s integrity, causing it to crack and leading to flooding.  The District stated that if the owner refused to comply, the District would remove the trees, and the District also threatened to terminate water delivery to the owner’s property.  The owner filed a lawsuit challenging the District’s removal demand, claiming (i) the easement does not give the District the right to remove the trees, (ii) the District’s internal rules were not part of the easement and therefore could not be relied upon, and (iii) if the District removed the trees it would be liable for inverse condemnation for taking private property without paying just compensation.  The owner also sought to prevent the District from terminating water service to the property.

Trial Court Decision

The trial court held that the planting of trees denied the District the right of ingress and egress, and therefore interfered with the District’s easement.  The court further held that the District had the right to restrict water delivery to the property.

The Appeal

The Court of Appeal agreed.  The Court provided a general background on easement rights, explaining:

The rights and duties between the owner of an easement and the owner of the servient tenement . . . are correlative.  Each is required to respect the rights of the other.  Neither party can conduct activities or place obstructions on the property that unreasonably interfere with the other party’s use of the property.  In this respect, there are no absolute rules of conduct.  The responsibility of each party to the other and the “reasonableness” of use of the property depends on the nature of the easement, its method of creation, and the facts and circumstances surrounding the transaction.”

The Court further explained:

[a property owner is] entitled to make all uses of the land that are not prohibited by the servitude and that do not interfere unreasonably with the uses authorized by the easement. . . .   Actions that make it more difficult to use an easement, that interfere with the ability to maintain and repair improvements built for its enjoyment, or that increase the risks attendant on exercise of rights created by the easement are prohibited . . . .  In determining whether the holder of the servient estate has unreasonably interfered with exercise of an easement, the interests of the parties must be balanced to strike a reasonable accommodation that maximizes overall utility to the extent consistent with effectuating the purpose of the easement . . . .

Applied to this situation, the Court explained that the evidence showed that the trees interfered with the District’s ability to maintain and repair the pipeline, and could eventually cause a maintenance issue or damage the pipeline.   As a result, the District could require the removal of the trees pursuant to its easement rights, and it would not be liable for a taking.

With respect to the District’s termination of water delivery to the property, the Court explained that irrigation districts are statutorily granted the power to create equitable rules for the distribution and use of water, and a district’s ability to enforce rules by terminating water delivery is a tool in providing for the orderly distribution of irrigation water.  The court therefore held that there is nothing inequitable in refusing to deliver water to landowners who refuse to comply with the district’s rules.

Conclusion

The Inzana decision is an important reminder for public agencies and utilities that their typical pipeline or transmission line easements include the right to prevent the placement of trees (or other improvements) within their easements to the extent such improvements interfere with the ability to access, maintain, operate, or repair the facilities; express easement language on this topic is not necessarily required.  The decision is also important for property owners, as they need to understand that in granting easement rights on their property, there is a likelihood that their remaining use of the easement area can be significantly limited, even if not expressly called out in the easement document.

(NOTE:  this post has been updated to reflect that the decision has been changed from unpublished to published.)

Rick Rayl on the Importance of the Appraisal Process

Welcome to the first installment of our video series from Nossaman’s 2019 Eminent Domain Seminars.  In this segment, Nossaman Partner Rick Rayl discusses the initial appraisal process and benefits of a strong appraisal.

Please access the video here.

 

 

California to Finally Tackle Inverse Condemnation Reform for Wildfires?

In Governor Gavin Newsom’s first State of the State address, he called for the creation of a strike force charged with developing a comprehensive strategy to address the destabilizing effect of catastrophic wildfires on the State.  On April 12, 2019, Governor Newsom announced the results of that dedicated effort, in the form of a report titled “Wildfires and Climate Change: California’s Energy Future” (“Strike Force Report”).  Governor Newsom also summarized the findings of the Strike Force Report in a press conference that can be viewed here.

The Strike Force Report first sets out steps the State must take to reduce the incidence and severity of wildfires, including the significant wildfire mitigation and resiliency efforts the Governor has previously proposed. Recognizing that climate change is a core driver of heightened wildfire risk, the Strike Force Report also outlines the Governor’s vision for clean energy policies to reduce the impacts of climate change on wildfire risk. The Strike Force Report concludes that wildfires are an issue that must be tackled by numerous stakeholders, including the State, local agencies, and private property owners, to address a variety of contributors to wildfires, including improving vegetation management and fire suppression, incentivizing private owners to mitigate risks, building safer communities and stricter land use controls, and improving emergency response.

With respect to a potential change in the law, the Strike Force Report suggests that shareholders (not customers) should continue to be responsible where a utility fails to operate safely, but otherwise, “[a]ny real plan must allocate costs resulting from wildfires in a manner that shares the burden broadly among stakeholders including utilities (ratepayers and investors), insurance companies, local governments, and attorneys.” The Strike Force Report also provides a brief overview of California’s unique doctrine of inverse condemnation and notes that the combination of strict liability and statutory attorney’s fees exposes California utilities to significant potential liability which needs to be more broadly apportioned.

The Strike Force Report identifies three concepts to address catastrophic wildfire risk, which are proposed for further consideration and development:

  1. Liquidity-Only Fund. This concept would (i) create a fund to provide liquidity for utilities to pay wildfire damage claims pending a California Public Utilities Commission (“CPUC”) determination of whether or not those claims are appropriate for cost recovery, and (ii) potentially broaden utilities’ ability to recover wildfire-related costs from ratepayers. The liquidity-only fund could be capitalized by utility investors and ratepayers and would then be available to provide funds for utilities to pay claims after a determination of cause and before a determination of cost recovery by the CPUC. The idea here is to provide financing to bridge the potentially lengthy gap between the time utilities must pay wildfire liability claims and when the CPUC makes a decision on cost recovery.
  2. Changing Strict Liability to a Fault-Based Standard. This concept would involve modification of California’s strict liability standard under inverse condemnation to one based on fault to balance the need for public improvements with private harm to individuals. The Strike Force Report argues that moving to a fault-based standard for inverse condemnation claims would shift the risk of property loss to insurance companies and uninsured or underinsured property owners in cases where the utility was not a bad actor. However, where the utility acted negligently, recklessly, or with intentional misconduct, it would still be responsible for paying damages, including possible punitive damages. Notably, the Strike Force Report does not outline what such a law would look like or how such a change would be accomplished, although Governor Newsom hinted at addressing wildfire liability under the “common enemy doctrine,” which has typically been limited to inverse condemnation flooding claims against flood control districts. Governor Brown’s original proposed legislation that ultimately became Senate Bill 901 (Dodd, 2018) (“SB 901”) last year had a somewhat similar concept to move away from the strict liability standard for wildfire-related inverse condemnation claims, but there was significant push-back and the concept was ultimately abandoned. There are also questions about whether such legislation would be constitutional without going through the process of a constitutional amendment.
  3. Wildfire Fund. This concept would create a wildfire fund coupled with a revised cost recovery standard to spread the cost of catastrophic wildfires more broadly among stakeholders. The Strike Force Report explains that the wildfire fund would create a buffer to absorb a significant portion of the wildfire liability costs that might otherwise be passed on to ratepayers under existing law while providing time for mitigation efforts to be advanced. The wildfire fund would also provide the utilities a source of immediate funding for the claims asserted against them for catastrophic wildfire damages, and would ensure prompt payment of those claims in exchange for a cap on recovery by impacted property owners or their insurers. As proposed in the Strike Force Report, the wildfire fund would include pooled capital from investor-owned electrical utilities, and municipally-owned utilities may participate at their option.

Additionally, the Strike Force Report argues that the current structure of the CPUC does not allow it to effectively address wildfire safety and be nimble in today’s changing

energy market. Therefore, the Strike Force Report proposes the following recommendations aimed at strengthening utility regulation at the CPUC:

  • Expand safety expertise by improving the CPUC’s ability to review wildfire mitigation plans, conduct inspections and audits, and enforce safety standards at investor-owned utilities.
  • Clarify cost recovery standards by setting clear guidelines for when utilities can pass on the costs of claims from wildfire damage to ratepayers.
  • Improve decision-making by overhauling procedures, delegating more decisions to technical staff so that judges and commissioners focus on core questions of rate-setting, and improving enforcement.
  • Review high-risk industry regulatory models and explore options for incorporating the latest climate impact research, in concert with the Governor’s Office of Planning & Research, as well as academic and industry experts in risk reduction.

In parallel with the Governor’s strike force, the Commission on Catastrophic Wildfire Cost and Recovery, has also been analyzing issues relating to catastrophic wildfires and is expected to build upon the Strike Force Report and issue its own set of recommendations to the Governor and the Legislature by July 1, 2019. The Commission on Catastrophic Wildfire Cost and Recovery was established last year in SB 901 and recently put out a Request for Comment on various wildfire-related topics in advance of its upcoming April 29, 2019 meeting.

The Strike Force Report announces several immediate next steps across a broad range of state agencies, reflecting the far-reaching consequences of catastrophic wildfires. The Commission on Catastrophic Wildfire Cost and Recovery, the Legislature, and the Governor’s strike force will continue working over the next few months to develop a solution for consideration by the Governor and the Legislature that most effectively addresses wildfire liability.

Faced with Funding Deadlines, Santa Cruz Approves Use of Eminent Domain

(Dan Coyro — Santa Cruz Sentinel)

As we have seen far too many times in California, eminent domain becomes a key tool for public agencies in order to keep public works construction on schedule and avoid jeopardizing state or federal funding.  According to an article in the Santa Cruz Sentinel, Santa Cruz council approves eminent domain for road widening, situation is playing out in Santa Cruz, where the City Council recently approved the adoption of a resolution of necessity to acquire two properties by eminent domain in order to satisfy a July deadline for a $2.8 million construction grant.

The properties in question are needed for the City’s planned intersection widening project at Highways 9 and 1, which would add four new lanes, plus modern traffic signal equipment, bike lanes, access ramps and crosswalks.  The properties are currently utilized as a rental complex and the 45-year location of Central Home Supply’s flagship store.  The property owner provided alternative means to improve traffic, which he claims have been “virtually ignored” by the City and Caltrans.  The proposed acquisitions will cut right through the business’ showroom, offices and parking, plus the house next door.

The owner claims that the unacquired portions of the properties may be left as uneconomic remnants and the City may be better off acquiring both sites in full.  Specifically, the owner indicated:

The costs are going to be horrendous, to try and get all that done, just cost-wise for us to try and stay on that site.  To bring it home, it’s the same as someone needing just a ‘minimal’ portion of your house for the public good.  Imagine they take your kitchen, bathroom and a wall off your bedroom.  Are you going to live there now?  That’s kind of what we’re left with.  We’ve tried everything, thinking inside and outside the box, but we can’t realign and reconfigure our operations successfully after the take, and with the road constraints impose by this project.

The owner did suggest that finding a suitable relocation site may assist in resolving the dispute.

Caltrans Must Sell Back Condemned Homes at Original Purchase Price

More than 50 years ago, Caltrans purchased roughly 500 homes under threat of eminent domain within the planned right-of-way for the anticipated construction of the I-710 freeway (linking Monterey Park to Pasadena).  As we reported a number of years ago, Caltrans finally decided to sell those homes once it became clear the alignment would not be utilized.  We haven’t heard much on how that sales process was going, but the Pasadena Star reported recently that it has been the subject of litigation, which has now reached an outcome.

In Steve Scauzillo’s April San Gabriel Valley Tribune article, Renters of Caltrans-owned homes in South Pasadena get to buy them $970,000 below market, several current tenants will be able to purchase their properties back from Caltrans for the same price Caltrans paid in 1963 — which range from the mid-$20,000’s to mid-$30,000’s.  Caltrans had attempted to sell the homes back at the same price, but adjusted for inflation, which brought the prices up to several hundred thousand dollars (which was still dramatically below their fair market value of over $1 million).  The court disagreed with Caltrans’ inflation adjustment, concluding that the homes should be offered back at the original acquisition price – no more, no less:

The Caltrans policy of adjusting the original acquisition price adjusted for inflation to determine the affordable sales price for the petitioners’ homes is an underground regulation and is therefore nullified.

Beckloff ruled that Caltrans came up with the idea of upping the sales price — sometimes six or seven times the acquisition price — on its own. In other words, officials made it up. “Caltrans cannot use its pricing methodology,” Beckloff wrote, saying the bureaucracy was acting in a “type of ‘quasi-legislating’ power …”

Caltrans tried to argue that selling any state-owned properties for less than fair market value would be cheating the taxpayers.  In its court briefs, Caltrans said it was “obligated and authorized,” and in fact “mandated by law” to “adjust the original acquisition prices for inflation.”  The court explained that Caltrans has no authority to vary from what is known as the “Roberti Law,” a complex set of regulations that requires Caltrans to offer the homes to tenants living there for a certain period of time and at an affordable price who are low- and moderate-income. Of the 460 surplus properties, about tenants at 120 of them qualified for the affordable price program.

Caltrans didn’t walk away empty-handed.  The court kept in tact covenants that will remain as liens on the property during a transfer of ownership.  The tenant does not realize the full equity, only the appreciation from the sales price from the purchase to the next sale. In other words, upon a later sale, about $900,000 in equity would go to a state agency charged with building affordable housing, called the California Housing Finance Agency.

The 710 freeway example — with Caltrans’ ownership dating now over 50 years — is quite the story.  After the backlash from the famous eminent domain Kelo decision and the enactment of Proposition 90 in California, the results today would likely have played out differently.  Under California Code of Civil Procedure section 1245.245, if a public entity does not put condemned property to public use within 10 years of the adoption of the resolution of necessity (and does not adopt a new resolution), the public entity is required to offer the property back to the original owner at the present market value, unless it is a single family residence, in which case it is to be offered back at the price paid by the agency, adjusted for inflation, if the original owner meets low or moderate income requirements.  If the original owner cannot be found, the agency is required to sell the property as surplus.

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