California Eminent Domain Report

A decision this week by the California Court of Appeal holds that a purchaser of property suffering damages through government conduct may not sue for inverse condemnation where:

1. The buyer knowingly purchases property impacted by a government taking, and
2. The purchase price reflects the property’s condition in light of the government impacts.

In Ridgewater Associates, Inc. v. Dublin San Ramon Services District (May 11, 2010) __ Cal.App.4th __, it was largely undisputed that the District's waste water treatment facility caused water intrusion damage on a neighboring warehouse property.  Unfortunately for the property's owners, they failed to account for the inverse condemnation claim when the property sold.  The buyer discovered the problem during due diligence, and the seller agreed to a price reduction to account for the damages. 

However, the seller did not clearly assign its inverse condemnation claim to the buyer as part of the transaction.  Thus, when the buyer closed escrow and proceeded to sue the District in inverse condemnation, the Court of Appeal upheld a summary judgment in the District's favor.  The court held that the buyer lacked standing to seek compensation for damages accruing before close of escrow but, more importantly, also held that the buyer could not recover for damages accruing after close of escrow because the buyer was not damaged.   The court concluded that the reduction in the purchase price qualified as "compensation" for the "loss." 

Had the parties cleanly assigned the seller's rights to the buyer, this should not have been a problem.  In Ridgewater, however, the parties’ failure to address these issues provided the government agency with a free pass for what amounts to an ongoing taking of the property.  

For more information about the case and its implications, take a look at our E-Alert, Buyer Beware: Improper Sale Documentation Results in Waiver of Inverse Condemnation Claim.

SEPTEMBER 1, 2010, UPDATE:  The California Supreme Court issued an order depublishing the Ridgewater opinion.