California Eminent Domain Report

In a recent unpublished Court of Appeal decision, Downs v. City of Redding (October 30, 2018), the Court took up two distinct issues: (a) whether a contractor’s use of property for construction staging constitutes a taking when such use is not authorized by the agency, and (b) whether "just compensation" requires payment of damages for the taking of a tree.  Both of these issues are common occurrences in many of the projects we work on and while the Court’s holdings may not come as a surprise, they are a good reminder of the fairness and equity courts apply to such issues.

Let’s take them one at a time:

A.     Contractor’s Use of Property

When planning large scale projects, government agencies often acquire as part of their project, property for use as construction staging or laydown yard. However, it is not uncommon that the government’s contractor may independently lease property in the vicinity of the project for use as office space, parking, and other uses related to the project.

In the Downs case, the City’s contractor Kiewit Construction Co. (Kiewit) did just that.  Kiewit leased office space and the parking lot of a commercial property from its owner, Richard Downs, adjacent to the project site. However, Kiewit’s use of the owner’s property went beyond office and parking use to storage of material and equipment, construction staging, etc. Owner sued the City in inverse condemnation for unauthorized use and taking of its property arising out of a public works project.

Background

At the time of trial the Court had made the following findings: The City’s bridge project approved by the City did not include the deliberate acquisition or use of the owner’s property, nor did the City authorize Kiewit to occupy or use the owner’s property for any purpose. In fact, the City had acquired its own construction easement for a staging area not far from the owner’s property.

Kiewit independently entered into a lease with the owner to occupy the owner’s office building and parking area and the City was not a party to the lease. Furthermore, the lease contained no restrictions for any specific uses on the property.

The evidence also showed that although the owner was unhappy about its office property being used as a construction staging and material storage area, the owner did not notify the City that Kiewit was using the property in any particular manner or somehow in violation of the lease; nor did the owner notify Kiewit that use of the parking area for stockpiling of material and construction staging was in excess of or violation of the lease.

Court’s Ruling

With these facts at hand, the Appellate Court explained that:

In order for the owner to prevail on its inverse condemnation theory, [owner] had the burden of proving the City planned, authorized, or directed Kiewit’s unauthorized use of the [owner’s] property for the benefit of the project.

The Court went through a detailed analysis and cited a number of cases related to inverse liability arising from work contractors perform. Placing the focus on the acts of the public entity, the Court relied on multiple cases including Marin Municipal Water Dist. v. Peninsula P. Co. (1939) 34 Cal.App. 2d 647, 652 and explained that if a contractor does work as planned by the City and causes damage, then the agency is responsible; however, if a contractor departs from the contract and the plans, or goes beyond them which results in injury or damage, then the contractor is responsible for the tort he has committed.

Relying on the evidence presented at the time of trial, the Court found that the project as designed and planned by the City did not include the owner’s property. The City had already acquired its own easement area and had instructed Kiewit to remain on the City’s side of the easement. Accordingly, the Court concluded that a taking did not occur because the City did not direct Kiewit to use the parking lot and such use was not within the contemplation of the plans and specifications for the project. In the Court’s view, owner’s claim amounted to a landlord-tenant dispute.

Conclusion

While the Downs case follows clear and simple logic and may appear to be restating the obvious, it’s important for agencies to keep in mind that agencies are not automatically immune from inverse liability for the acts of a contractor.  However, whether a taking occurs will hinge on the facts of the case as to whether the wrongful act is an authorized or deliberate part of the design, or construction of the public project.

B.     Damaged Redwood Tree

While much of the Downs case dealt with inverse liability for the actions of the contractor, next the Court considered a second ancillary issue related to damages for the taking of a redwood tree.

Background

City, with the consent of the owner, shut off the irrigation system on a portion of the owner’s property for a specified period. The parties stipulated that compensation for the taking and damaging of plaintiff’s landscaping as a result of loss of irrigation would be awarded in an amount not less than $10,510. The only issue for the court was whether the redwood tree that died on plaintiff’s property following the water shut off was separately compensable.

The owner’s expert testified that the replacement cost of the redwood tree was $42,700. The City’s appraiser testified that the demise of the tree did not diminish the overall value of the property, and in his opinion, the measure for damaging of the landscape was the cost to cure it, and because landscaping had been repaired and replaced, the appraiser concluded the property did not suffer any diminution in value from the lack of the redwood tree.

Court’s Ruling

The court agreed with City’s appraiser that the proper measure of damages is the diminution, if any, of the fair market value of the property compared to after the taking of the landscaping and irrigation system.  The tree had no contributory value to the overall value of the property. Because the loss of the redwood tree did not result in diminution in value of the property, owner was not entitled to separate compensation for the tree.

Conclusion

The Court was clear that the concept of just compensation is to put the owner in as good a pecuniary position as he would have been if his property had not been taken, while being fair to the public. The ruling was based on equity and fairness as the Court indicated that to allow [owner] to recover $42,700 would put the owners in a better pecuniary position than they would have been in had the tree remained intact, which is contrary to public policy...