Originally Published in Daily Journal, January 15, 2013.
As we look back on 2012, federal funds continued to make their way to local projects and shovels continued to break ground for infrastructure projects. This led to increasing eminent domain litigation - resulting in a high number of published appellate decisions.
One of the subject areas that saw a lot of attention in 2012 (and will likely continue to be a focal point in 2013) is the debate over the roles of the judge and the jury in eminent domain cases. In County of Glenn v. Foley, 2012 DJDAR 17177 (Cal. App. 3d Dist. Dec. 21, 2012), the court leaned towards the jury, holding that it was improper for the trial court to exclude an appraiser's opinions because the appraiser's comparable sales required material adjustments. The court explained that an appraiser's quantitative adjustments to comparable sales do not amount to valuing a property other than the one in question (something precluded by Evidence Code Section 822). Instead, such adjustments are a natural and necessary tool to prove the fair market value of the subject property.
Similarly, in City of Livermore v. Baca, 205 Cal. App. 4th 1460 (2012), the court leaned towards a larger jury role. There, a property owner sought to recover severance damages caused by the agency's partial acquisition. The trial court refused to admit the evidence, finding it speculative and noncompensable, but the Court of Appeal reversed, holding that the judge should have allowed evidence of temporary severance damages to be presented to the jury since the alleged impacts interfered with the owner's actual, intended use of the property.
In City of Corona v. Liston Brick Company of Corona, 208 Cal. App. 4th 536 (2012), by contrast, the court leaned towards the judge. There, the condemning agency sought to acquire an easement over a portion of a larger parcel. In valuing the part taken, the owner sought to rely on (1) another public agency's appraisal of the entire larger parcel, (2) the resulting purchase agreement between the owner and that agency for the portion of the property not being acquired, and (3) the option price offered by the other agency for the entire parcel in the event the condemning agency did not complete its acquisition. The court held that all three types of evidence were inadmissible: the appraisal because it valued a different property than the one being condemned; the purchase agreement because it was a sale to a public agency which could have acquired the property through eminent domain; and the option price for the larger parcel because the option was never exercised.
One of the subject areas that saw a lot of attention in 2012 ... is the debate over the roles of the judge and the jury in eminent domain cases.After passing on a number of Fifth Amendment issues in recent history, the U.S. Supreme Court has three takings cases on the docket for the current term.
Finally, in People ex rel. Department of Transportation v. Dry Canyon Enterprises, 211 Cal. App. 4th 486 (2012), the court clarified the jury's role in determining loss of business goodwill, holding that before a jury can determine the amount of a business' goodwill loss, the business must prove that it possessed goodwill before the taking. While this requirement already exists as implicit in the very concept of "loss of business goodwill," the opinion also arguably limits a business goodwill appraiser's ability to utilize the cost to create approach to valuation, and serves as a warning to appraisers using untested or nontraditional valuation methodologies.
2012 also saw decisions concerning the right to take and some other procedural irregularities. For example, in Council of San Benito County Governments v. Hollister Inn, 209 Cal. App. 4th 473 (2012), the government's acquisition resulted in the taking of a hotel's key access point, leaving it with only an admittedly inferior secondary access point. The owner challenged the agency's right to take because the agency failed to analyze whether it should condemn substitute access in an effort to mitigate damage to the hotel. The court held that Code of Civil Procedure Section 1240.350 allows an agency to condemn alternative access only if the taking results in the remainder parcel becoming landlocked. In other words, if the taking leaves the remainder with any access, however inferior it might be, Section 1240.350 does not provide the agency with any right to condemn substitute access. As a result, the court overruled the owner's right to take challenge.
In California Department of Transportation v. Menigoz, 203 Cal. App. 4th 1505 (2012), the issue was not the agency's right to take but its obligation to pay litigation expenses. There, Caltrans accepted the property owner's final demand of compensation five days before trial, and the parties entered into a stipulated judgment that was silent on the right to recover litigation expenses. The owner filed a motion to recover its attorney fees, and the court held that if the matter settles at any time before the jury is empanelled, the agency has no liability for litigation expenses, regardless of how unreasonable its pre-settlement conduct may have been.
2012 also saw a pair of fairly unique inverse condemnation cases. In West Washington Properties v. California Department of Transportation, 210 Cal. App. 4th 1136 (2012), the court rejected an inverse condemnation claim arising from Caltrans' requiring the removal of an 8,000 square foot "wallscape" advertising space on a property owner's building, explaining that general regulations restricting the use of property typically do not constitute takings. And in Pacific Bell Telephone Company v. Southern California Edison Company, 208 Cal. App. 4th 1400 (2012), one private utility company sued another for inverse condemnation arising from damage to the company's telephone cable. At issue was whether a private utility company could be held liable for inverse condemnation and, if so, whether a strict liability or a reasonableness standard governed such cases. The court held that a privately owned utility company could be liable in inverse condemnation, and that the same strict liability standard applicable to public agencies also applied to utility companies.
Moving beyond California, the U.S. Supreme Court also took an interest in takings issues. After passing on a number of Fifth Amendment issues in recent history, the U.S. Supreme Court has three takings cases on the docket for the current term. In Arkansas Game and Fish Commission v. United States, 133 S.Ct. 511 (2012), the court held that there was no categorical exclusion by which the government could avoid paying just compensation under the Fifth Amendment for the temporary flooding of private property. The court explained that relevant factors in determining whether a temporary flooding rises to the level of a compensable taking include: the degree to which the invasion is intended or is a foreseeable result of authorized government action; the character of the land at issue and the owner's reasonable investment-backed expectations regarding the land's use; and the severity of the interference.
In Koontz v. St. Johns River Water Management Dist., 133 S.Ct. 420 (2012), the court will decide whether the essential nexus and rough proportionality tests required to be satisfied for government land-use exactions also apply to government demands for other types of property, and in Horne v. U.S. Department of Agriculture, 133 S.Ct. 638 (2012), the court will decide whether the takings clause can be raised as a defense to a federal government program requiring raisin "handlers" to turn over a percentage of their raisin crops.
But 2012 was not just about published appellate decisions. One of the major themes of 2012 was the fallout from the Supreme Court's December 2011 decision allowing the dissolution of California's redevelopment agencies. In 2012, the Legislature enacted some "clean up" legislation - AB 1484 - which corrected some of the obvious deficiencies of AB XI 26, but created other problems and uncertainties. More significantly, successor agencies, developers, and bond holders all fought back, filing more than a dozen lawsuits challenging the law. We can expect the headlines in 2013 to be filled with the continuing redevelopment-dissolution saga.
Finally, one other longstanding news story from 2012 involved efforts by a private company to convince government agencies to condemn underwater mortgages in an effort to stabilize housing markets in areas particularly hard hit by the decline in property values. While generating tremendous media attention and at least an initial analysis by a number of local governments, the controversial plan has yet to be implemented in any jurisdiction. While this story will likely continue to make news in 2013, it seems unlikely that the plan will see any large scale success due to some fundamental flaws in the valuation premise behind it.
Bradford B. Kuhn is a member of Nossaman's Eminent Domain and Valuation Practice Group and specializes in real estate and business litigation with an emphasis on eminent domain and inverse condemnation. He can be reached at firstname.lastname@example.org or (949) 833-7800.
Rick E. Rayl is chair of Nossaman's Eminent Domain and Valuation Practice Group and a member of the firm's Real Estate Practice Group. He is an experienced trial attorney dealing with eminent domain, inverse condemnation, and other real estate and business disputes. He can be reached at email@example.com or (949) 833-7800.