Caltrans’ Ceres Interchange Project May Result in Eminent Domain

With the passing of California’s new gas tax (SB1) earlier this year, local government agencies have come across a new source of funding to complete public infrastructure projects.  According to an article in the Ceres Courier, Caltrans Seeks Comments on Service Road Interchange, the City of Ceres hopes its Service/Mitchell/Highway 99 Interchange project can benefit from the new funds.  As part of the project, Caltrans and the City are planning one of the State’s first “diverging diamond” designs, which would add a new interchange at Service Road and modify the Mitchell interchange at Highway 99.  As a result, El Camino would be eliminated and a number of properties would be impacted.

The City has been purchasing impacted properties on El Camino in anticipation of the project, but deals have not been reached with all property owners.  The City is hoping to avoid the use of eminent domain, but it hasn’t been ruled out.  In addition to acquiring impacted properties, typically service roads and new interchanges can substantially change access (ingress and egress) to a property, which could also result in a potential taking triggering the need to pay compensation.  Many times the government does not consider changes in access when deciding what properties to acquire or when make offers of just compensation under eminent domain law.  But a substantial impairment of access or a taking of a property’s abutter’s rights can trigger liability, and if the agency does not formally acquire such rights, a property owner could bring an inverse condemnation action to recover compensation.  If successful, the inverse condemnation action also entitles the owner to recover attorneys’ fees, expert fees, and other litigation costs, so it’s important for agencies to ensure they consider potential liability with such projects.

The final design is still open to comment, but absent any major comments, Caltrans intends to proceed as planned.

Join Nossaman at the Appraisal Institute’s 50th Annual Litigation Seminar

This week, Nossaman Eminent Domain Partner Bernadette Duran-Brown will be speaking at the Southern California Appraisal Institute’s 50th Annual Litigation Seminar.

Ms. Duran-Brown will be providing a Summary of Recent Eminent Domain and Valuation-Related Cases. Her presentation will cover the most recent and upcoming legal developments and is essential for anyone involved with public projects or affected by large-scale development in the region.  We will provide a follow-up blog post summarizing Ms. Duran-Brown’s presentation for anyone unable to attend in person.

The seminar will be held on Thursday, November 9th, at the historic Santa Anita Park and Club House, located at 285 West Huntington Drive, Arcadia, California.  Click HERE for more information and to register.

If you’re unfamiliar with the Appraisal Institute’s Annual Litigation Seminar, it provides litigation professionals with insight into the complex and ever-changing litigation valuation arena including the trends and issues shaping the appraisal and legal fields. CLE credit will be available for the seminar, including 7 hours of BREA and AI CE with MCLE CE pending.

We hope to see you there!

When Condemnation Actions Go Wrong

In the vast majority of cases, when a public agency exercises eminent domain, the only issue in dispute is the amount of just compensation the agency must pay for the property being acquired.  Even in situations where a property owner challenges the agency’s right to take, it is typically for procedural reasons that can ultimately be corrected.  However, where a property owner successfully challenges the agency’s right to take, the consequences can be significant, as the agency is required to pay the property owner’s litigation expenses — including attorneys’ fees, expert fees, and costs.  (See Code Civ. Proc., sec. 1260.120.)  A recent unsuccessful eminent domain action filed by the City of Claremont shows just how drastic of a result that can be.

According to an article in the Claremont Courier, Water wars are over as city drops appeal against Golden State Water, the City of Claremont previously sought to exercise its power of eminent domain to take over the water system owned by Golden State Water Company (GSW).  Because the City was seeking to take over operations of an investor-owned public utility, the presumption of “public necessity” was rebuttable, as opposed to the typical conclusive presumption afforded to public agencies when acquiring private property.  (See Code Civ. Proc., sec. 1245.250.)  GSW challenged the City’s right to take on the grounds that the City could not prove a “more necessary public use” in taking over operations of GSW’s water system.  The trial court agreed with GSW.  The City’s eminent domain action was therefore dismissed, and the City was forced to pay GSW’s litigation expenses, which totaled over $7.6 million.  In addition, the City was on the hook for its own legal fees, which total around $6.1 million.  As part of a settlement, the City dropped its appeal of the outcome, and ultimately cut a deal to reduce the amount of litigation expenses in must pay GSW in exchange for agreeing not to adopt another resolution of necessity to take over GSW’s water system again.  In the end, the City ends up with no property or water system, and is on the hook for millions and millions of dollars.

The Claremont case serves as an important reminder for public agencies to understand the risks of exercising eminent domain and the consequences of a successful right to take challenge.  The situation also is a good lesson for agencies to carefully craft the property interests they seek to acquire; if the agency later determines that different or less property rights are needed as compared to what the agency originally sought, the property owner may also be entitled to recover litigation expenses.  (See Code Civ. Proc., sec. 1268.610.)

Court Clarifies Rules for Takings, Precondemnation Damages Claims

Two of the more complicated issues eminent domain attorneys face are analyzing whether government conduct rises to the level of a taking, and whether the government engaged in precondemnation conduct that gives rise to damages apart from paying just compensation.

Earlier this week, an unpublished California Court of Appeal decision, Dryden Oaks v. San Diego County Regional Airport Authority, grappled with both issues. (See update below.)

In Dryden Oaks, a developer purchased property near the Palomar Airport in Carlsbad.  The property was in an area governed by the San Diego County Airport Authority, which establishes policies for land uses of properties near airports in San Diego County.  Without getting too far into the weeds of the complicated fact pattern, the City approved development of one of the developer’s two parcels, over the Authority’s objections, but later rejected development permits on the other property, following the Authority’s objections to the developer’s application.

The developer sued both the County and the Authority.  Crucially, as it would turn out, the developer did not sue the City itself.

The developer claimed the Authority’s policies (which the City accepted in rejecting the application at issue) constituted a taking of the developer’s property.  The developer also claimed that the Authority engaged in unreasonable precondemnation conduct, providing a second theory of liability.

The Court engaged in a fairly elaborate discussion of takings jurisprudence generally, and regulatory takings in particular.  It’s too much to go through in a blog post, but if you want a good overview of that area of law, the opinion itself is worth a read.  Ultimately, though, the Court held that the Authority’s policies simply could not give rise to a takings claim, because the Authority did not have the power to make land use determinations.  Rather, it was the City that had the power to approve or reject the developer’s applications, and it was the City that in fact rejected the developer’s plans.  The Court explained:

Because the Authority did not have the ability to make the final land use determination at issue in this case, . . . the Authority met its burden on summary judgment to show [plaintiff] could not establish this element of its takings claim . . . .

Because the Court concluded the Authority could not be held liable in inverse condemnation, it also rejected the developer’s claim that the County was liable because the Authority was acting as its agent.

The Court went on to discuss the developer’s precondemnation damages claim.  Again, the Court engaged in a detailed discussion of such claims, but ultimately found the issue fairly easy to resolve.  Because neither the Authority nor the County had made any public announcement of an intent to condemn the developer’s property, neither was liable for precondemnation damages.

In the end, the opinion may be most helpful as a primer on both takings and precondemnation damages claims.  Aside from that, the opinion likely will have little impact.  Legally, it cannot be cited in court because it is unpublished.  And factually, it presents an odd fact pattern, where the plaintiff chose not to sue the government agency actually responsible for denying the owner’s development applications.  (Note that the Court expressed no opinion on whether the City could have been liable for inverse condemnation or precondemnation damages under the facts presented.)

UPDATE:  I wanted to add a quick update to this post.  On October 19, 2017, the Court of Appeal ordered the Dryden Oaks opinion published.  It is now citable as legal precedent in other court cases.  I’m still not sure it adds much to the already existing body of law on regulatory takings or precondemnation damages, but if nothing else, it becomes the most current decision on those issues.

Transmission Line Proximity Damages — Real or Just Perceived?

Having recently worked on a number of pipeline and transmission line projects, I find the issue of proximity damages to be fascinating.  Does being adjacent to gas pipelines or electrical transmission lines diminish the value of an owner’s remaining property?  I have seen studies suggesting nearly every possible conclusion.  If you’re interested in this subject, there’s a great article that was recently published in the Appraisal Institute’s Appraisal Journal, Summer 2017 edition, titled The Effect of High-Voltage Overhead Transmission Lines on Property Values:  A Review of the Literature Since 2010.

The article, written by Orell Anderson, MAI, Jack Williamson, PhD, and Alexander Wohl, provides an excellent overview of a number of studies that have been prepared on this subject, and what the recent market data suggests.  While every situation will differ depending on a number of factors, such as geographic location, distance/proximity, size of transmission lines, pre-existing conditions, and view impacts, the general consensus seems to be that while the public has an adverse perception and general dislike for transmission lines, the market data reveals little to no diminution in property values.  In other words, while market participants may generally prefer to not be adjacent to transmission lines, such preferences do not translate into noticeable price differences in the market data.

If you’re interested in learning more about this topic, I highly recommend you spend some time with the article.

Appraisal Institute’s Valuation Magazine – The Art of Easements

Acquiring a fee interest in property seems to be so out-of-style.  Nearly every linear infrastructure project I work on now involves the acquisition of various types of easements, whether its a typical temporary construction easement, access easement, street/highway easement, or transmission line easement, or a more complicated aerial easement, parking structure easement, or floating easement.  The scope and terms of these easements can have massive ramifications on compensation, and particularly severance damages to impacted properties.  If you’re interested in learning more about these issues, check out the 3Q 2017 volume of the Appraisal Institute’s magazine, Valuation, which published a recent article I wrote titled the Art of Easements.

The article covers how appraisers can assist agencies in defining the scope of the easement, analyzing the “most injurious use,” and unique valuation issues involving temporary construction easements.  I hope you enjoy, and feel free to leave a comment if you have any thoughts or questions about the article.

Friday Afternoon Eminent Domain Case Review

It’s a Friday afternoon and I decided to take a quick look at the advance sheets for any newly decided appellate cases involving eminent domain. My search revealed an unpublished decision that came out yesterday (September 7, 2017) called Sacramento Area Flood Control Agency v. Souza, 2017 Cal. App. Unpub. LEXIS 6117. I’ll provide the highlights below.

Facts:

This matter involved an acquisition by the Sacramento Area Flood Control Agency (SACFA) of approximately 2.2 acres of land for the Natomas Levee Improvement Program. The acquisition was needed to widen the levee along Garden Highway, to relocate some utility facilities, and to plant grassland.  This was a partial acquisition of a larger parcel consisting of 4.68 acres.

This case proceeded to an eight-day jury trial on valuation. The property owner’s appraiser opined to a value of $465,000 and SAFCA’s appraiser opined to a value of $195,000.  The jury ultimately rendered a verdict of $455,000 for the part taken.  Both sides agreed prior to trial that there were no severance damages.

On appeal, SAFCA claimed that: (1) the trial court erred by excluding two items of evidence; (2) the property owner’s appraisal was not substantial evidence supporting the verdict; (3) the property owner’s attorney committed prejudicial misconduct; and (4) the trial court erred by awarding the property owner its litigation expenses.

Evidentiary Exclusions:

First, SAFCA claimed the trial court erred in excluding all mention of the remainder property and its certificate of compliance in the after condition. This was not a novel issue because the parties had agreed there were no severance damages.  Thus, under California law any benefit the project had on the remainder was not relevant because project benefits may only be used to offset severance damages.  While the owner’s appraiser did conclude that the part taken was the only portion of the property capable of development, the appellate court held that SAFCA was able to challenge that assumption at trial.  Thus, there was no error.

Second, SAFCA claimed the trial court erred when it prevented SAFCA from offering testimony from its appraiser to critique the property owner’s appraisal. SAFCA had not designated its appraiser to offer such testimony and the appraiser indicated during his deposition that he had not been asked by SAFCA to offer such testimony.  This is the one aspect of this decision that really caught my eye because it struck me as contrary to California law.  The appellate court agreed and concluded the trial court erred by excluding these opinions because there is no requirement to designate a rebuttal expert.  Nonetheless, the appellate court found the error to be harmless because SAFCA had an opportunity to cross examine the property owner’s appraiser and that was deemed sufficient.  This finding was surprising.  I generally don’t see how cross examination of an expert sufficiently addresses the matters that may be called out through another expert.  For example, if an attorney asks an opposing expert during cross examination if his opinion was flawed for failing to comply with pertinent appraisal standards or for relying on a flawed methodology, the opposing expert could simply disagree.  The attorney must be permitted to offer a competing expert opinion because the attorney can hardly offer his or her own opinion as evidence.  If done well, it isn’t difficult to envision a jury being moved by an expert who capably explains why a competing expert’s opinion is flawed.  To dismiss SAFCA’s inability to offer this evidence as harmless struck me as unfair.  If nothing else, a new trial should have been permitted.

Lack of Substantial Evidence:

This is a very difficult standard to overcome if you are the appellant on appeal because the appellate court presumes the record contains evidence sufficient to support the judgment and it will review the whole record in a light most favorable to the judgment, resolving all evidentiary conflicts and drawing all reasonable inferences in favor of the judgment. (City & County of San Francisco v. Golden Heights Investments (1993) 14 Cal.App.4th 1203, 1211.)  For this reason, SAFCA’s argument that the owner’s appraiser didn’t constitute sufficient evidence to support the verdict did not gain any traction.

Attorney Misconduct:

Once again, this argument achieved very little on appeal because SAFCA’s counsel either failed to object to the alleged instances of misconduct, or he did and the objections were sustained. The claimed misconduct also mostly related to the owner’s attorney suggesting that the taking was against his client’s will.  By definition, that is what eminent domain entails, so this too was a losing argument.

Litigation Expenses:

The body of California law governing the award of litigation expenses in eminent domain cases has evolved considerably over time. Generally speaking, a trial court evaluates the reasonableness of the property owner’s final demand and the agency’s final offer in light of the ultimate award in the case and the evidence at trial.  In particular, the trial court will look at: (1) the amount of difference between the offer and the compensation awarded; (2) the percentage difference between the offer and the award; and (3) the good faith, care and accuracy in how the amount of the offer and demand were determined.  (Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 720.)  In this case, the property owner’s final offer was roughly an even split between SAFCA’s appraisal of $195,000 and its appraisal of $465,000.  Conversely, SAFCA only offered $55,000 more than its appraisal.  When the jury rendered a verdict of $455,000, SAFCA really had no realistic chance of avoiding litigation expenses.  Not surprisingly, SAFCA lost this issue on appeal too.

Final Thoughts:

This case didn’t break any new ground which is undoubtedly why it wasn’t published. But it still presented a good overview of many of the issues we eminent domain practitioners regularly encounter.  With the exception of finding the exclusion of rebuttal testimony to be harmless error, the appellate court’s conclusions were unsurprising given the facts stated in the decision.

New Bill Aims to Streamline LA Olympics Transit Projects & Clippers Arena

According to an article in the Los Angeles Times, California lawmakers pitch a break from a key environmental law to help L.A. Olympic Bid, Clippers Arena, California lawmakers introduced Senate Bill 789 last week in an effort to exempt from CEQA any rail, bus, or transit project connected to the 2028 Olympics, along with expediting environmental challenges to construction of the Clippers arena in Inglewood.  If passed, SB 789 would streamline such projects as the environmental review process is typically a multi-year undertaking.  The Bill was introduced by Senator Bradford (D-Gardena), who represents Inglewood in the Legislature.

Senator Bradford urged that these projects were too important to risk stalling through the regular CEQA process.  According to Bradford, “we must take action now to ensure the city’s vision comes to fruition.  It is critical that this is done immediately for the timely implementation and success of forthcoming projects.  These major projects will help boost the economy in Inglewood and the greater Los Angeles region, while improving investment, entertainment and highlighting Inglewood’s significance to California.”

Interestingly, SB 789 was not pushed by the City of Los Angeles, the Olympic Bid Committee, or LA 2028; similarly, Los Angeles’ transportation agency, which has numerous transit projects planned in advance of the Olympics, also did not play a part in its drafting.

With respect to the Clippers arena, the Bill would exempt from CEQA entirely a new transit link between a light-rail stop and the proposed arena, which would also connect to the NFL stadium under construction for the Rams and Chargers.  SB 789 would also expand the arena developers’ ability to take private property through eminent domain — except nearby residences — to ease construction.  And, it would prevent a judge from halting the project, even if the environmental review was inadequate.

We’ll see if SB 789 gains any traction despite a likely divisive issue between environmental groups and pro-development supporters.

Court Narrowly Defines “Public Improvement” for Inverse Condemnation Liability

Under inverse condemnation law in California, a public agency is generally strictly liable for physical damage to private property caused by a public improvement.  This means a public agency can be held liable even if the public improvement was properly designed, constructed and maintained.  Rarely is there a question of whether a project constitutes a “public improvement,” but in Mercury Casualty Co. v. City of Pasadena (Aug. 24, 2017), the Court of Appeal recently addressed this issue and held that a tree constitutes a work of public improvement for purposes of inverse condemnation liability only if the tree is deliberately planted by the government as part of a project serving a public purpose.  Where there is no record of installation or purpose, there can be no inverse condemnation liability.

Background

In 2011, the City of Pasadena experienced a storm that uprooted more than 2,000 City-owned trees.  During the storm, a large pine tree located on City property fell on a private residence, causing approximately $800,000 in damages.  After paying out insurance benefits, the homeowners’ insurance company sued the City for inverse condemnation on the theory that the City owned the tree and maintained and cared for it.  While the City conceded it owned the tree and maintained it, there was no evidence of who originally planted the tree over 60 years ago.  The trial court held that the tree was a public improvement and the City was strictly liable for the property damage.

Court of Appeal’s Decision

On appeal, the Court held that the tree was not a public improvement and the City was therefore not liable.  The Court explained that a “public project or improvement” is a “use which concerns the whole community or promotes the general interest in its relation to any legitimate object of government.”  It went on to explain that a tree constitutes a work of public improvement for purposes of inverse condemnation liability if the tree is planted by or at the direction of the government entity as part of a planned project serving a public purpose, such as to enhance the appearance of a public road.  Despite the City’s conceding that the tree was publicly owned and maintained, the Court found that there was no evidence of who planted the tree, and therefore no evidence it was planted it as part of a project serving a public purpose.

Conclusion

Pursuant to Mercury Casualty Co., a public agency cannot be held strictly liable for inverse condemnation unless the damage was caused by a public improvement that was “deliberately designed and constructed” to benefit the public.  For older improvements or smaller ones with no record of who constructed the improvement or why, this adds an additional hurdle for plaintiffs to demonstrate liability.  This is particularly important for damage caused by trees.

While the public agency may escape strict liability under an inverse condemnation cause of action under this narrow definition (and the accompanying exposure to attorneys’ fees and costs), even where there is no evidence a tree was planted as part of a planned project or design serving a public purpose or use, an entity may still face liability for other claims, including dangerous condition of public property.

California Supreme Court Petitioned to Resolve Split in Authority Regarding Inverse Condemnation Liability in Sewage Backup Cases

The City of Oroville (“City”) has petitioned the California Supreme Court for review of an unpublished Court of Appeal decision, City of Oroville v. Superior Court (2017) 2017 WL 2554447 (Third District), finding the City liable in inverse condemnation for 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.  While no published decisions have been issued on this subject, four unpublished decisions in different jurisdictions throughout California over the past ten years have reached widely different decisions.  If the California Supreme Court decides to hear the case, it may resolve the split in authority regarding government liability for damages caused by sewage backup.

Factual Background

Sewage from the City’s sewer main entered a property owners’ building through a private lateral service line that did not have the legally required backwater valve in place. A root growth partially blocking flow through the sewer main was later discovered and removed by the City.  The quality of design and construction of the sewer main was not challenged or at issue.  The property owners filed suit for a determination of the City’s liability in inverse condemnation pursuant to Code of Civil Procedure section 1260.040.

Procedural Background and Court of Appeal Proceedings

The court found the City liable in inverse condemnation and trial was set on the remaining tort cause of action for nuisance and for damages in inverse condemnation. The City filed a Petition for Writ of Mandate seeking reversal of the Superior Court order.  After agreeing to hear the case, the Court of Appeal later denied the City’s petition.  The City has now petitioned the California Supreme Court to challenge the finding of liability based on inverse condemnation where the property owners failed to install and maintain a legally required backwater valve on the private sewer lateral connection to their building.

The Petition to the California Supreme Court

The City claims that the Court of Appeal did not consider the fact that the property owners failed to design, install and maintain a legally required backwater valve on their property. The Court of Appeal found the City “negligent” in failing to enforce a building code that the property owners are responsible for complying with.  While the trial court and the Court of Appeal rely heavily on California State Auto Ass’n Inter-Insurance Bureau v. City of Palo Alto (20016) 138 Cal.App.4th 474 (“CSAA”) to impose strict liability against a municipality in a sewage intrusion case, the City claims that the CSAA case did not address a missing but legally required valve situation.  Instead, the CSAA decision relied on the fact that the property owner was “faultless” and did everything to prevent a sewer backup, including installing a new private sewer lateral shortly before the backup.  The CSAA court also found that the municipality’s main line was deficient and not laid at a sufficient slope to carry sewage away from the homeowners’ building.

The City claims that by discussing and applying flood control cases to the sewer backup cases in the CSAA case, the court has created confusion in the law between two very different types of potential harm caused by public projects. The general rule of inverse condemnation law imposes liability only when a public project that is “functioning as intended” causes damage.  (Albers v. County of Los Angeles (1965) 62 Cal.2d 250, 261-262.)  Flood control cases are an exception to this rule.  The City claims that flood control cases should have no application to sewer cases and the “failed to function as intended test” should not apply where legally required backwater valves are not installed and maintained.  As a result, a taking should not occur if the overflow on the owners’ property occurs because the system fails to function as intended as a result of the owners’ failure to comply with established state and local building codes.

We will keep an eye on whether the California Supreme Court decides to resolve the issues presented by the City of Oroville’s petition. Regardless of whether the Court affirms or reverses the lower court’s decision, the confusion presented by the current split in authority should be resolved so that municipalities will know what to do to avoid liability and private owners can know what to do to protect their private property.

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