California Eminent Domain Report

The California Court of Appeal recently issued an unpublished decision, Ridge Properties v. County of Riverside Flood Control and Water Conservation District, which addresses whether a government agency's failure to pay an agreed amount of compensation gives rise to a claim for inverse condemnation.  The answer is "no."

In Ridge Properties, a property owner planned to develop an industrial park in Riverside County.  The conditions of approval for the project required the owner to dedicate some of its property and construct a drainage or flood control facility to protect downstream properties.  The facility would benefit the County and other owners, so the parties entered into a reimbursement agreement so the owner would only be responsible for its fair share of the costs of construction.  Like many construction projects, plans changed and costs escalated, and the owner ended up footing a bill six times larger than initially anticipated.  The County then declined to provide reimbursement for the additional costs incurred by the owner.

Because the flood control district participated in the design of the drainage facility and ultimately took ownership and operated the facility, the owner sued the flood control district for inverse condemnation, claiming the district "took its property without just compensation" when the owner was required not only to develop the regional drainage facility but also to dedicate its property.

The trial court sustained the flood control district's demurrer to the complaint, and the Court of Appeal agreed, holding that the owner's claim is against the County for breach of contract, not against the flood control district for inverse condemnation: 

the fact that the flood control district "took" [the owner's] property when it took ownership of the storm drain facility does not . . . give rise to a claim for inverse condemnation.

The Court explained that a claim for inverse condemnation does not arise when one public entity contracts for infrastructure but fails to pay as agreed, and another public entity ultimately takes control of the infrastructure.  While it is true that the second public entity has obtained property without compensation, it was not the action of that entity which caused any damage that the owner suffered; rather, the owner's damages resulted from the contracting agency's breach of contract. Under those circumstances, the developer's recourse is against the contracting public entity, not against the public entity which ultimately took possession of the property.

The Court differentiated past cases where a government agency has extorted property or improvements without offering to pay for either, as in this case, the county offered compensation, which the owner accepted, but then refused to pay once the facility was completed.