In People v. McNamara (--- Cal.Rptr.3d ----, Cal.App. 6 Dist., August 14, 2013), a California court of appeal considered whether the owners of property condemned by a state agency were entitled to precondemnation damages due to a decline in the property's value during the course of the proceedings. The court ruled that because the property owners failed to offer evidence that the actions of the condemning agency caused the decline in property value, the property owners were not entitled to precondemnation damages.
In 1982, Michael and Rosalinda McNamara (“McNamaras”) bought a 1.24-acre lot near Prunedale in Monterey County with the intent of someday building a home on the lot. By 2002, and nearing retirement, they had begun planning the home. Also in 2002, they attended a meeting held by the California Department of Transportation ("DOT") about a long-considered freeway bypass project that could involve the property. At the meeting, DOT stated that the project lacked necessary funding to proceed. The McNamaras requested that DOT keep them informed of any further developments.
In January 2003, DOT sent the McNamaras a letter apprising them that the environmental review process on the project was underway, but serious funding issues remained. The McNamaras proceeded to break ground on their new home in November 2003, and moved into it in September 2004. By 2006, the final environmental impact report (“EIR”) on the project had been approved. DOT began acquiring the necessary properties, including a portion of the McNamaras' property, leaving the McNamaras to understand that their home would remain and they would be allowed to stay in it.
In November 2007, a DOT survey crew came to the McNamaras' property and staked out the DOT "partial take" and the "temporary construction easement." Michael McNamara was present, determined that the house would be uninhabitable after the "partial take", and advised the survey crew that DOT would have to buy the entire property. According to McNamara the partial take would destroy his septic system and cut off access to his well, and the temporary easement would cut access to his front door, garage and driveway. In February 2008, DOT and the McNamaras began negotiating the sale but were unable to agree on a suitable price.
In July 2008, DOT filed its complaint seeking to condemn the McNamaras' property for the project. The McNamaras answered that they were entitled to just compensation, litigation expenses, and precondemnation damages based on "unreasonable delay/and or unreasonable conduct" which had caused their property value to decline. A jury returned a verdict that the fair market value of the property in July 2008 was $1.2 million and the amount of precondemnation damages was $175,000. The McNamaras moved for a judgment notwithstanding the verdict asking for precondemnation damages of $400,000. The court granted the motion, awarding the McNamaras $1.6 million, including the $400,000 in precondemnation damages plus attorneys' fees of $603,636 and costs of $30,107.22. DOT appealed.
The court stated that a property owner may be entitled to precondemnation damages if the owner demonstrates that "(1) the public authority acted improperly either by unreasonably delaying eminent domain action following an announcement of intent to condemn or by other unreasonable conduct prior to condemnation; and (2) as a result of such action the property in question suffered a diminution in market value." Additionally, the court noted the owner must bear losses caused by a general decline in property value rather than the public authority’s conduct.
The question was whether the McNamaras’ property value had been damaged "as a result of" DOT's actions, rather than by a general decline in market values. The court concluded that the McNamaras offered no evidence that the decline in their property value was caused by any actions taken by DOT. Courts have distinguished claims for precondemnation damages where a "de facto taking," has occurred, meaning "physical invasion or direct legal restraint." The court noted declines in value following such a de facto taking have been ruled the responsibility of the condemning party. However, that was not the case here. The McNamaras continued to live on their property and presented no evidence that its value as a residence was reduced due to any conduct by DOT.
With no "de facto taking," and a general decline in property values between 2006 and 2008 that was unrelated to any action taken by DOT, the McNamaras failed to establish that they were entitled to any precondemnation damages. Further, if they were not entitled to precondemnation damages, the court found that they were not entitled to attorneys' fees and costs.
The judgment awarding precondemnation damages and litigation expenses was reversed and remanded to the trial court with orders to enter a new judgment rejecting the precondemnation damages and the award of litigation expenses.