Originally Published in Law360 - August 16, 2013.
When a public agency seeks to impose a land exaction on a planned development, the analysis of whether the proposed dedication meets the necessary "essential nexus" and "rough proportionality" tests is often cumbersome and complex.
It gets even trickier in eminent domain actions where no proposed development exists, and the parties are valuing property based on a hypothetical, highest and best use that would potentially trigger a dedication requirement.
In such situations, if the property being acquired would likely be subject to a lawful dedication, the property is valued either:
(1) at its current use (i.e., a use that would not trigger the dedication); or
(2) at the highest and best use (i.e., a use that would trigger the dedication), subtracting out the land that would be subject to the dedication requirement.
But who makes the critical findings regarding the likelihood and legitimacy of a dedication — the judge or the jury?
In a published California state appeals court decision, City of Perris v. Stamper (August 9, 2013), the court resolved this long-standing question, holding that because these questions involve factual determinations impacting the property's fair market value, they must be decided by a jury.
The Stampers owned nine acres of vacant, industrially-zoned land in the city of Perris. In 2009, the city filed an eminent domain action to acquire the property needed for a 94-foot-wide truck route running through the middle of the Stampers' property.
The city determined that the Stampers would have been required to dedicate the truck-route property as a condition of any future development and therefore appraised the take as undevelopable agricultural land. The Stampers argued that the dedication requirement should not be considered in determining fair market value because it was not reasonably probable that the city would impose the dedication requirement and, if imposed, the dedication would be unconstitutional.
Thus, the Stampers argued that the acquisition should be valued at its highest and best use as a light industrial property without considering the dedication requirement.
The trial court heard evidence regarding the "reasonable probability" and constitutionality of the city's proposed dedication and determined that the dedication requirement qualified as reasonably probable and constitutional. The Stampers then stipulated to the city's appraised agricultural value and appealed, claiming it was inappropriate for the court — as opposed to the jury — to determine the factual issues concerning the dedication requirement.
The Court of Appeals Decision
On appeal, the court agreed with the Stampers, holding that issues surrounding the dedication requirement are "essential to the determination of ‘just compensation' and therefore must be ascertained by a jury." This finding that the issues are essential to determining just compensation is crucial, since eminent domain cases present one of the unique areas of the law where the judge — not the jury — decides many issues of fact. In particular, while the jury decides factual issues related to just compensation, the judge determines all other issues of law and fact. (See People v. Ricciardi (1943) 23 Cal.2d 390, 402.)
The court first walked through the long history of eminent domain decisions involving dedications, explaining that when condemned property has to be dedicated as a condition of developing the larger parcel, the condemned property must be valued at its current use because it could never be used for any other purpose.
However, before property can be valued in such a manner, the public agency must demonstrate:
(1) there is a "reasonable probability" that the dedication requirement would be imposed if the owners sought to develop the property, and
(2) the proposed dedication requirement would have been constitutionally permissible.
The court also explained that in order to satisfy the second prong, the dedication must satisfy the "essential nexus" and "rough proportionality" tests set forth in Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374.
Relying on Metropolitan Water District of Southern California v. Campus Crusade for Christ Inc. (2007) 41 Cal.4th 954, the court held that the likelihood and nexus/proportionality of a dedication requirement is a factual determination for a jury, similar to the jury's role in determining whether there is a reasonable probability of a zoning change. Because these issues present factual questions impacting a property's fair market value, they are within the jury's province.
The court explained that the trial court should only decide these issues on its own when exercising its role as "gatekeeper" (i.e., where there is insufficient evidence to allow reasonable jurors to conclude the city would not require dedication of the take as a development condition). Therefore, because the trial court improperly usurped the role of the jury, the court reversed.
For purposes of remand, the court also noted that the jury was not to consider the possibility of future development concessions to the property owner in the event the property's future development resulted in less impacts than anticipated at the time of the eminent domain proceeding.
While a prior appeals court decision, State Route 4 Bypass Authority v. Superior Court (2007) 153 Cal.App.4th 1546, may have indicated otherwise, the Stamper court clarified that "the rough proportionality test may [not] be met based on promises of future ‘negotiation, modification or offset.'"
These future promises are unenforceable, and the fair market value of the condemned property, together with severance damages and all other reasonably foreseeable damages resulting from the condemnation, must once and for all be fixed in the condemnation proceeding.
The Stamper decision provides clarity on the judge's limited role as gatekeeper when it comes to dedication determinations. By further expanding on the California Supreme Court's decision that a reasonable probability of a zone change falls within the jury's province, the appeals court's broad view here will likely be relied upon by property owners to argue that other issues of contested fact — as long as they bear upon fair market value — also must be decided by the jury.
The Stamper decision also further supports the principle that foreseeable damages in eminent domain actions must be fixed once and for all, meaning a public agency may have difficulty introducing evidence of future likelihood or possibilities in an attempt to reduce damages.
This becomes especially problematic for agencies where an eminent domain action proceeds to trial before the project has been constructed. Agencies must be extremely careful to clarify in their resolutions of necessity what enforceable promises the agency intends to abide by; otherwise, informal concessions or mitigation efforts may be inadmissible.