Property Reserve, Inc. v. Superior Court: California Property Owners Secure Victory in New Eminent Domain Opinion

by Jeffer Mangels Butler & Mitchell LLP

In a victory for California property owners, the California Court of Appeal, on March 13, 2014, issued a new opinion holding that the State of California's proposed entry onto hundreds of properties in Northern California for geological and environmental testing amounted to a taking under the state constitution. The opinion of the court in Property Reserve, Inc. v. Superior Court may have a profound impact upon major public works projects throughout the state.

Factual Background

The State of California proposes to construct a tunnel to divert fresh water from Northern California to parched Southern California. To do so, it needs to acquire parcels of land. Before commencing eminent domain proceedings, the State, through the Department of Water Resources, sought to conduct surveys, tests and borings on various parcels of land that may be acquired to determine whether they are suitable for the project.

Thus, in 2009, the State filed numerous petitions pursuant to California Code of Civil Procedure § 1245.010, which allows a condemning agency to enter upon property before commencing eminent domain proceedings to engage in testing reasonably related to the proposed use of the property. Upon the filing of a petition under that code section the trial court is required to determine "the probable amount of compensation to be paid to the owner of the property for the actual damage to the property and interference with its possession and use". The condemning agency may enter the property and conduct requested testing upon making a deposit in that amount. Following entry, the property owner may make a claim against the deposited funds.

The State sought to conduct both geological and environmental testing. The geological testing would involve soil testing and boring activities on 35 parcels that would leave holes on the properties filled with a permanent cement/bentonite grout. The environmental testing would take place on hundreds of parcels and involve surveys, mapping and soil sampling. The testing would require entry for a total of 60 intermittent 24-hour days spread over a period of two years for each of the parcels.

The trial court entered orders allowing the environmental testing upon the State depositing $1,000 to $6,000 per affected property. The trial court, however, denied the proposed geological testing reasoning that it would amount to a taking of private property without compliance with the state's eminent domain statutes. Both sides appealed.

Court of Appeal's Analysis

The court of appeal upheld the trial court's ruling regarding the geological testing but reversed its order regarding the environmental testing ruling that both activities amounted to a taking. Accordingly, the court of appeal remanded the case with instructions to the trial court to deny the environmental testing.

According to the court of appeal:

Eminent domain authority must be exercised in strict conformity to the constitutional protections and procedures that limit its operation. If a condemnor intends to take private property or intends to perform actions that will result in the acquisition of a property interest, permanent or temporary, large or small, it must directly condemn those interests, and pay for them, in a condemnation suit that provides the affected landowner with all of his constitutional protections against the state's authority.

With these principles in mind, the court turned to the two types of proposed activities. As to the geological testing, the court had little trouble determining that it would amount to a taking because it "would result in a permanent physical occupation by the government removing earth from the parcels and filling the . . . bore holes with a permanent column of cement/bentonite grout to depths of up to 205 feet." "[A] permanent physical occupation authorized by government", according to the court, "is a taking without regard to the public interests that it may serve." Further, relying on an oft-cited Supreme Court case finding a per se taking where a statute authorized a cable company to attach a cable and two small cable boxes to the roof of an apartment building, the court noted that the size of the permanent physical occupation has no effect on determining whether a taking had occurred. "The modern significance of physical occupation is that courts never deny compensation for a physical takeover."

Moreover, although the environmental testing would not amount to a permanent physical invasion of property, the court also concluded that "performance of the environmental activities works a taking of a compensable property interest in the nature of a temporary easement". "There is no bright-line rule for determining whether a temporary physical invasion constitutes a taking", according to the court. Nevertheless, applying a "more complex balancing process", the court concluded that "the degree to which the invasions are intended, the character of the invasions, the amount of time the invasions will last, and the invasions' economic impact" supported the view that the proposed environmental testing would work a temporary taking.

Finally, the court concluded that the procedures provided by Section 1245.010 did not provide a constitutionally adequate eminent domain proceeding for the government to directly acquire an interest in private property. Most important to the court's view was that Section 1245.010 did not provide for mandatory precondemnation procedures nor a jury trial on the amount of compensation that must be paid for the taking.

Concluding Thoughts

The court's opinion in the Property Reserve case has an obvious and immediate impact upon the water diversion project at issue in the case. Given the nature and breadth of the opinion, it could also affect other public works projects statewide. Given the stakes, review by the California Supreme Court is a significant possibility. The California Legislature may also take note and seek to provide a legislative fix to the constitutional infirmities the court found in the State's entry statutes. In either event, the last chapter of this story has likely not yet been written.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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