California Eminent Domain Report

US Supreme Court Declines to Hear Important Takings Case

Brad Kuhn — Mon, 23 Aug 2010 09:00:49 -0800

We reported several months ago about the property owner impacted by the expansion of the Everglades National Park petitioning the US Supreme Court to determine how to treat the g overnment's enactment of tougher zoning standards that decrease the value of property which the government may want to acquire in the future. The issue presented was whether the government's actions must be the primary cause of the precondemnation depression of the property's market value, or whether there must only be a nexus between the government's actions and the depressed market value.

This is an interesting debate, and according to a recent blog post by the Cato Institute's Ilya Shapiro, the US Supreme Court declined to hear the case. Shapiro was clearly disappointed, explaining:

[t]he case involved the federal government maneuvering to unjustly drive down property values before taking land for (legitimate) public use — in this case expanding the Everglades — thus greatly diminishing the compensation it was obligated to pay the owners."

I think most people will agree that if the government is taking steps to drive down the acquisition price of property it eventually seeks to acquire, and those government activities result in the property's losing value, such actions should be disregarded when valuing the property. California's eminent domain law addresses exactly this issue, and courts routinely hold that in such circumstances, the property is to be valued without considering such "project-related impacts."

The issue becomes tricky, however, when a property owner is trying to prove why the government undertook certain actions that resulted in the property's losing value. Were the government's actions really in an effort to reduce the property's eventual acquisition price, part of the project for which the property is being taken, or for some other legitimate, but unrelated, purpose?

I have seen government agencies attempt to avoid paying compensation at all by simply enacting tougher zoning standards on a property, or designating a property for potential conservation (see, for example, the Western Riverside County Regional Conservation Authority's conservation efforts), which actions essentially make it impossible for the owner to make a viable use of the property. A nexus standard, as argued by the property owner in the Everglades case, would make proving compensable government impacts much easier. As it now stands, however, there is no bright-line rule, at least in California, as to whether the "primary cause" or "nexus" test should apply in determining whether the government's actions should be disregarded in determining a property's fair market value.

Court Blurs Line Between Goodwill and Relocation Benefits

Rick E. Rayl — Thu, 19 Aug 2010 10:31:38 -0800

In Los Angeles Unified School District v. Casasola (Aug. 5, 2010), the Court of Appeal examined the interrelationship between recovery of lost business goodwill pursuant to Code of Civil Procedure section 1263.510 and recovery of relocation expenses pursuant to Government Code section 7267 et seq.

My colleague, Gale Conner, prepared a good summary of the Casasola case detailing the facts and the Court's reasoning. The bottom line is that the Court held that items that might be recoverable under the Relocation Act cannot be included in a claim for loss of business goodwill.

At first glance, this does not seem surprising. Section 1263.510 contains an express limitation that a goodwill award not be duplicative of relocation benefits. And nearly 20 years ago, the court in Redevelopment Agency of the City of Emerville v. Arvery Corporation (1992) 3 Cal.App.4th 1357 held that expenses that could be recovered under the Relocation Act must be excluded from an award of business goodwill.

But the Casasola opinion expands these concepts, holding that even if the expenses cannot be recovered under the Relocation Act, they are nonetheless precluded under the goodwill statute if they are the types of things that might have been recoverable under the Relocation Act.

In Casasola, for example, the business owner spent over $1 million on business reestablishment costs to prepare the relocation site. Since the Relocation Act caps such costs at $10,000, the court held that anything above that amount was not compensable -- under either the Relocation Act or as business goodwill.

The Casasola court concluded that it could not second guess the Legislature's decision to place a $10,000 cap on reestablishment costs by allowing the claim to come in under the guise of the goodwill statute.

In my mind, this conclusion misses the mark. Yes, the Relocation Act and section 1263.410 both deal, very generally, with the same subject matter. But the policies behind the two statutory schemes are quite different, and the court's failure to understand this difference led it down the wrong path.

Relocation benefits are available to every displaced business, whether that business is profitable or not. The policy is that a government taking should not force someone out of business, even if the business is not economically viable. However, the Legislature understandably wanted to draw some lines in this respect, and it capped some of what may be recovered as a relocation expenses (including the $10,000 cap on reestablishment costs).

Loss of business goodwill is a whole different animal. Not every business possesses goodwill, and not every displacement causes a business to lose goodwill. But where a business does possess goodwill, and where the owner can prove that a displacement causes a loss of that goodwill, section 1263.510 makes that loss recoverable.

The Legislature also placed limits on goodwill recovery, including an express requirement that the business owner take reasonable steps to mitigate the loss of goodwill. And the goodwill statute contains no $10,000 cap on what the owner must spend in an effort to preserve goodwill.

All one needs to do is flip the numbers from Casasola to see the problem with the Court's conclusion. Instead of spending $1,300,000 to preserve $126,000 (as happened there), imagine a business that must spend $126,000 in order to preserve $1,300,000 in goodwill. If the only viable relocation site for this $1,300,000 business requires $126,000 in reestablishment costs, the business must either (1) shut its doors, or (2) spend the $126,000. Under section 1263.510, the owner clearly cannot opt to close the doors, claiming a total loss of goodwill; the owner would have failed to take reasonable steps to mitigate.

Thus, the owner must spend the money or its goodwill claim will be barred. But the Relocation Act makes any such reestablishment costs over $10,000 non-compensable as relocation expenses. And the Casasola opinion now also makes those costs non-compensable as lost business goodwill.

Yet, the owner had to incur those costs, and they unquestionably lower the business' value. (A hypothetical buyer facing $126,000 in relocation costs would clearly pay less than a hypothetical buyer not facing such costs.)

Moreover, such relocations often do not proceed with such bright lines. If the owner spends $126,000 out of pocket to render the site suitable, it is presumably an ineligible "reestablishment cost" (now barred under Casasola). But if the landlord pays those costs as a tenant improvement allowance, subsuming the costs within the tenant's new rent, any increased rental expense qualifies as a classic example of something that impacts goodwill. (Indeed, the obligation to pay higher rent at the replacement site was a fundamental issue in the first California Supreme Court opinion to address business goodwill claims under section 1263.510, People v. Muller.)

Should recoverability really come down to whether the tenant pays the costs up front or gets them included within its rent?

Talking Eminent Domain Issues This Fall

Rick E. Rayl — Thu, 19 Aug 2010 09:33:35 -0800

For anyone looking to spend more time on eminent domain issues, there are two upcoming events you may want to consider.

For those looking for a one-day commitment, I recommend the IRWA, Chapter 1 2010 Fall Education Seminar, which is taking place on October 26 at the Quiet Cannon in Montebello. I don't have the full list of speakers yet, but it's always a good event, and my partner, David Graeler, is Chair again this year. I'll be talking about the interrelationship between goodwill and the Relocation Act, using the recent Casasola opinion as a jumping off point (look for a post about that later today).
For those looking for two full days of eminent domain excitement, CLE International is holding its 12th Annual Eminent Domain Conference October 28 and 29 at the Hotel Nikko in San Francisco. I'll be speaking the morning of October 28 on a panel discussion of the Guggenheim regulatory takings case, and the entire schedule looks great.

And don't forget, summer's drawing to a close, so your local IRWA chapter is likely about to start its regular meetings again. I know that Chapter 67 (Orange County) has its meeting on September 14 and Chapter 57 (Inland Empire) has its meeting on September 1.

New Court Decision Addresses Eminent Domain Issues

Brad Kuhn — Wed, 18 Aug 2010 09:58:44 -0800

The California Court of Appeal issued an interesting unpublished decision yesterday addressing a number of eminent domain issues, ranging from right to take challenges, entitlement to goodwill, severance damages, and jury instructions. The case, City of San Luis Obispo v. Hanson, garnered enough attention that several third parties filed Amicus briefs with the Court.

By way of background, the City of San Luis Obispo decided to realign a road partly in order to accommodate a newly approved Costco development. The realignment required right-of-way acquisition from a property on which the Rose Garden Inn operated. After Costco was unable to reach an agreement with the property's owner on the acquisition price, the City adopted an appraisal (which found no severance damages) prepared by an appraiser hired by Costco, made an offer based on that appraisal, and passed a resolution of necessity to acquire the property by eminent domain.

The property owner's right to take challenge was unsuccessful, and the case proceeded to trial on compensation. The trial court found the Inn was not entitled to lost business goodwill, and the jury returned a verdict finding only about a quarter of the amount of severance damages claimed by the owner.

On appeal, the following issues were decided:

The Road Realignment Met the "Public Necessity" Test: While the road realignment was partly caused by Costco's project, and Costco would clearly benefit from the realignment, the project still met the "public necessity" test in that the road was needed by the public and the City had considered realignment regardless of the Costco development.
The City's Adoption of Costco's Appraiser's Value Was Appropriate: The Court held that the City could adopt the opinion of the appraiser retained by Costco (instead of hiring its own appraiser to value the take), as long as the appraiser was independent and impartial, and the City was not required to turn over the full appraisal on which its offer was based (it was only required to provide a copy of the summary basis of appraisal).
The City was not Precommitted to Taking the Property by Eminent Domain: Even though the Costco project was already approved (which required the realignment), the City did not abuse its discretion in adopting the resolution of necessity because it was not precommitted to the taking; the City substantially debated the issue and ultimately could have modified the realignment had it chosen to do so.
The City's Severance Damages Determination Was Appropriate: The City's appraiser determined the severance damages suffered solely based on the cost to cure method of valuation, and it assumed that the City would build driveways on the remainder of the property. The Court held that the appraiser was not required to value the remainder of the property before and after the taking, and that a condemning agency may agree to do work on the owner's property to reduce compensable damages (as long as it does not contradict the resolution of necessity).
The Trial Court Appropriately Declined to Allow Testimony on the Business' Alleged Lost Goodwill: The business' goodwill appraiser determined that the business possessed goodwill equal to ten percent of total income, and that all the goodwill would be lost because of the uncertainty of the project. The court appropriately excluded this testimony because it was already part of the appraiser's calculation of severance damages the business would suffer, and because the appraiser's ten percent figure was arbitrary and could not be supported.
The Jury Instruction Stating the Costs of the Acquisition Would be Borne by the Public Was Appropriate: The jury was not told that Costco would be paying the ultimate costs of the acquisition, but instead that the public must pay the compensation. The Court held this instruction was appropriate, as the jury need not be made aware of Costco's role, and ultimately, Costco may be partly reimbursed by the City if Costco paid more than its fair share of the roadway (since other property owners benefiting from the project must pay a portion as well through assessments/development impact fees).

In all, this was an exciting case for an eminent domain attorney, as it dealt with many issues that rarely occur in one case. Although the case is unpublished, and therefore cannot be cited as law, it is useful to see how at least one Court of Appeal panel views these issues.

Jury Determines Fair Market Value of Laguna Woods City Hall Building

Brad Kuhn — Thu, 12 Aug 2010 07:13:44 -0800

The City of Laguna Woods had been leasing the building it used for City Hall on El Toro Road for a number of years. In 2005, the City -- apparently tired of leasing the space -- decided to acquire the property by using its power of eminent domain. After proceeding to trial, a jury determined this week that the fair market value the City is required to pay for the building was $6.43 million -- $2.78 million more than the City had initially offered.

According to an Orange County Register article, "Laguna Woods must pay $6.4 million to take City Hall," the issues that resulted in the valuation spread between the building's owner, Raintree Realty, and the City, included (1) whether the property decreased in value as a result of the City's taking over the site, and (2) the value of a parking lot easement the City was acquiring as part of the eminent domain action.

Ultimately, the City will be forced to pay nearly $3 million more than it thought for for the property, plus interest. The City has stated that the proceeds will come from its reserve funds.

Rancho Cordova Eminent Domain Case Involves Allegations of Contractual Interference

Rick E. Rayl — Wed, 11 Aug 2010 11:59:38 -0800

On its face, the City of Rancho Cordova's eminent domain action to acquire a vacant parcel for redevelopment purposes is a familiar story. The government wants to seize private property in order to turn the property over to a third party for redevelopment. This is the basic fact pattern that caused the national eminent domain uproar that started when the Supreme Court issued its 2005 Kelo decision.

Unlike in Kelo, however, in California the government typically cannot take such steps without making appropriate findings that the property being condemned is "blighted." This requirement may not actually apply here, as the property's intended use may qualify as a public use. But in any event, the property exists as a vacant, overgrown weed patch, so a blight finding doesn't seem to be much of a stretch.

Why, then, is the case getting so much media attention? The controversy lies in the fact that the city intends to turn the property over to the Los Rios Community College District for construction of a satellite campus. And even that might not raise eyebrows were it not for the fact that the property's owner had a signed contract to sell the property to Los Rios for the very same purpose.

Specifically, Los Rios entered into a contract to buy the property for $8.6 million. Then, allegedly just weeks after Los Rios walked away from the deal, the City moved forward with its plans to acquire the property in order to turn it over to Los Rios. And (here's the important part), the city offered only about $4 million -- less than half the contract price.

According to an August 10 Sacramento-area CBS news story by Mike Luery, On The Money: Land Grab?: Multi-Million Dollar Fight in Rancho Cordova, the courts will now need to sort out whether the city meets the requirements to condemn the property in light of the underlying facts.

Not surprisingly, the property's owner is crying foul:

"I had a contract with Los Rios," said Sam Fong. "And they (Rancho Cordova) interfered with the contract and they're taking the property for half the contract price."

I don't know nearly enough about the real facts here to offer a meaningful prediction about what might happen, but I do know that if the city in fact induced Los Rios to walk from its deal under a promise to get them the property for less than half the price, the owner may well have a legitimate complaint.

That said, even if the owner's allegations prove true, I'm not convinced it trumps the city's right to take the property. Assuming that (1) the area is in fact blighted, (2) the city made a proper offer at the property's current fair market value, and (3) the city met the other procedural requirements for initiating an eminent domain action, they should get to proceed with the eminent domain action.

And, unless the owner can prove a precondemnation damages claim, no reason exists that the city should have to pay more than the property's fair market value on the date of value. (Note that a precondemnation damages claim is not out of the question here. If the owner can prove the city's conduct qualifies as "unreasonable precondemnation conduct," this could support a precondemnation damages claim, even though the facts are not what one generally thinks of when analyzing precondemnation damages.)

Apart from all of that, the city's potential liability outside the context of eminent domain is an entirely different question. I see no reason the city could not be liable for tortious interference, for example, even if the court upholds its right to take. In such case, the damages are pretty easy to identify: the difference between the compensation awarded in the eminent domain case and the $8.6 million contract price.

And what about Los Rios? I haven't seen any discussion about whether the owner might possess a breach of contract claim, but one could easily surmise that if Los Rios backed out of the deal simply because it knew the city would condemn it at a lower price, any stated basis for canceling the deal could be viewed as an ineffective pretext.

On the other hand, Los Rios will presumably offer an explanation for why it was justified in backing out of the deal that has nothing to do with the city or eminent domain, and the city will argue that it is taking the property for unquestionably legitimate purposes, and that it should not penalized because it happens to be condemning at a time when market conditions have deteriorated.

This will be a fun one to follow.

Glendale Plans to Extend Eminent Domain Authority

Rick E. Rayl — Tue, 10 Aug 2010 09:00:44 -0800

The City of Glendale plans to vote tonight on a plan that would extend eminent domain authority in its central redevelopment area for an additional 12 years. According to an August 10 article in the Glendale-News Press, "City Set to Extend Eminent Domain," the agency's eminent domain authority is currently set to expire next month.

According to the Director of the Community Redevelopment & Housing Department, Philip Lanzafame, eminent domain is a key tool if redevelopment projects are to succeed: "If you didn't have this, some property owners could hold the community hostage."

This action comes as Glendale is in the midst of efforts to acquire a key property needed for a planned expansion of the Museum of Neon Art. So far, those efforts have been unsuccessful, and a representative of the property's owner has asked the city to hold off while he completes efforts to bring a national retail tenant to the space.

Assuming Glendale does indeed extend its eminent domain authority, whether the property's owner is able to secure a major tenant may become moot, as the city's authority to condemn will trump any other plans the owner may have for the property.

Eminent Domain Authority Reinstated for Parts of Barstow

Brad Kuhn — Mon, 09 Aug 2010 09:33:27 -0800

We've been following the City of Barstow's potential reinstatement of its redevelopment agency's power of eminent domain, most recently noting that a special hearing was set for August 5. According to a Desert Dispatch article from over the weekend, "Eminent domain power reinstated for parts Riverside Drive and east Barstow," the reinstatement was only partly successful: the redevelopment agency can now use eminent domain on commercial property in Project Area 1 (the eastern part of the City at the end of Riverside Drive near the sewer plant), but a deadlocked vote caused the City's reinstatement of its eminent domain power for Project Area 2 (the area near Home Depot) to fail.

This means that the redevelopment agency can use the power of eminent domain for non-residential properties lying in the area between Interstate 15 and the BNSF railroad along Interstate 40, as well as land surrounding Walmart. Whether the remaining Project Area 1 land will be potentially subject to eminent domain is still under consideration, as several council members had potential conflicts of interest, as they either worked or lived within the project area. The City hired an appraiser and economist to determine whether the reinstatement of eminent domain in Project Area 1 would impact the council members' homes or businesses, and the expert's opinion came back negative. The council will re-vote on the issue at the August 16th meeting.

Barstow Seeks to Appease Concerned Residents Regarding Eminent Domain Issues

Rick E. Rayl — Mon, 26 Jul 2010 09:15:39 -0800

We have reported several times on the City of Barstow's efforts to renew its Redevelopment Agency's eminent domain authority, but Barstow residents apparently remain skeptical. A public meeting in April left many dissatisfied with the City's efforts, and the City's Council's effort to address the issue in May led to a deadlock.

Now, the City has scheduled an additional public meeting for this week in anticipation of the City Council's August 5 special meeting on the issue.

According to a July 25 article in the Desert Dispatch, "City to attempt second eminent domain meeting Wednesday," the City seeks to renew eminent domain authority

for the area encompassing the outlet malls, the area south of Rimrock Road between Barstow Road and Montara Road and the area west of Avenue L on West Main Street. The agency also seeks to reinstate eminent domain powers for the area between Interstates 15 and 40 near Walmart.

Residents want assurances, in writing, that the Redevelopment Agency will not use eminent domain to condemn residences or churches. Others want a better understanding of how the City defines blight before supporting additional eminent domain rights.

The meeting will be held at 6:00 p.m. on Wednesday, July 28, at the Barstow Church of God in Christ at 1375 Sage Dr.

Salinas Considering Expansion of Redevelopment Area

Brad Kuhn — Tue, 20 Jul 2010 11:21:54 -0800

According to an article in the Californian, "Salinas mayor: Beat blight, grow tax base," the City of Salinas is slated to vote tonight on whether to expand three Salinas redevelopment zones. The city is considering such a move in order to grow property tax revenues as assessed property values in the area rise.

The Mayor of Salinas, Dennis Donohue, believes business created in the redevelopment zones could bring an influx of between $5 million and $15 million annually in sales and occupancy taxes. He is quoted as saying: "We have to expand our tax base, and this is a possible tool to do it." He goes on: "This is an opportunity to attract investment into the community and then take part of the tax base that's created, put it back in the community and create a cycle of growth."

Community members, on the other hand, are skeptical. The President of the Salinas United Business Association said certain areas hadn't benefited enough from the program's dollars, and other city council members believe too few projects have been completed.

A feasibility study commissioned by the city also recommends reinstituting the power of eminent domain for some of the redevelopment areas, which has not been allowed since 2003. Expansion of the zones' areas would require official blight findings and environmental reviews. If the city decides to go down that route, it better make sure its blight findings are sufficient so as to avoid having them struck down, as was recently the case with the City of Glendora.

Tenant Reaches Deal with Oxnard to Avoid Eminent Domain

Brad Kuhn — Mon, 12 Jul 2010 08:19:48 -0800

With plans to demolish the old Carriage Square shopping center and rebuild it with a Lowe's, the City of Oxnard was on the verge of passing a resolution of necessity to acquire by eminent domain the leasehold interests of one of the few remaining tenants of the center. However, according to an article by Scott Hadly, "Oxnard, credit union likely to avoid eminent domain clash," the City's threat of eminent domain appears to have resulted in a deal with that tenant, Pacific Oaks Credit Union.

In order to force the tenant to relocate and give up its rights under its lease, the City would normally be required to institute eminent domain proceedings and thereafter compensate the tenant for relocation expenses, lost business goodwill, and other forms of damages, such as leasehold "bonus value" (the difference between the tenant's contract rent and the market rent the tenant would be required to pay at the new location). Here, for example, the tenant believed there would be a $500,000 difference between its rent under its lease and current market rents.

The shopping center property is owned by a private developer, and the City is therefore seeking to acquire the leasehold interests of the tenant on behalf of the developer in order to prompt the property's redevelopment. The developer would typically be on the hook for any expenses the City incurs through the eminent domain process. However, in order to avoid such expenses, it appears the developer of the new shopping center and the tenant are putting the finishing touches on a new lease agreement that will relocate the tenant at a reasonable rental rate at a satisfactory location.

Local Businesses Urging City to Reinstate Eminent Domain Authority

Rick E. Rayl — Fri, 09 Jul 2010 13:03:07 -0800

Most of the media surrounding eminent domain -- and eminent domain for redevelopment purposes in particular -- involves claims of eminent domain abuse and grass roots efforts to limit the government's ability to condemn property.

In the City of Ukiah, however, local business owners are apparently taking the opposite stance, urging the City to reinstate its eminent domain powers that lapsed in 2001 to deal with a blight situation that business owners believe are hurting them. We initially reported on the issues with the Palace Hotel back in Februrary, but a July 9 article in The Ukiah Daily Journal, "Residents plea for city to take action on 'black-hole' Palace Hotel," explains that the public is the driving force behind the current efforts:

Several downtown business owners, frustrated by the long vacant Palace Hotel, urged the Ukiah City Council to reinstate powers of eminent domain for the city's redevelopment agency during a special meeting Wednesday night.

The problem is that the old hotel property is apparently in a serious state of disrepair, and efforts to cause the property's owner to rehabilitate it have failed. One resident summed up the public's mood as follows:

"When I moved here 20 years ago, I heard the Palace Hotel would be rehabilitated, but ever since then, it's just been more and more blight," said Richard Gardiner, describing eminent domain as a good motivating tool. "A cop rarely has to use his gun, but knowing he has it keeps people in line."

I'll admit that I've never been to Ukiah and I know nothing about the Palace Hotel, its history, or the efforts to rehabilitate it. I do know, however, that since 2005's Kelo decision, I have rarely seen a news report evidencing such overwhelming support to condemn property for redevelopment.

Tempers Rise Over Potential Use of Eminent Domain in Fresno

Brad Kuhn — Fri, 25 Jun 2010 06:43:47 -0800

According to an ABC news story, "Threat of Eminent Domain Raises Tempers at City Hall," residents of downtown Fresno are up in arms about the City's effort to extend its redevelopment rights. While City Council members tried to assure residents that the use of eminent domain would be a "last resort," those in attendance at the council meeting were unappeased.

In particular, residents complained that the City's plans are actually limiting efforts to improve the area because no one wants to spend money on a property or business when it is unclear what the City is going to do with the property. One local property owner was quoted as saying

"I see this quite honestly, as a land grab. I don't think it's a proper use of eminent doman. You just want to take our land for ten cents on the dollar."

This is a typical problem government agencies face. On the one hand, state and federal regulations usually require significant time and efforts before certain projects (including redevelopment projects) are approved and agencies can commit to anything concrete. On the other hand, during that time-consuming approval process, potentially impacted property and business owners are in a state of flux, not knowing what is going to happen with their properties.

As to the City Council's comment that eminent domain would only be a "last resort," shouldn't that always be the case? California Government Code section 7267.1 requires public entities to "make every reasonable effort to acquire expeditiously real property by negotiation."

Today Marks the Five-Year Anniversary of Kelo

Rick E. Rayl — Wed, 23 Jun 2010 12:47:19 -0800

Five years ago today, the Supreme Court announced its decision in Kelo v. City of New London, triggering perhaps the most broad sweeping eminent domain reform effort in U.S. history, along with tremendous critical commentary -- including, as just one example, an August 2005 piece on Forbes.com titled Eminent Disaster.

Quite frankly, I'm a bit bored by the decision after five years (I can't begin to count the number of times I've explained the decision and what it means to clients, at seminars and conferences, and on this blog). However, others are marking the occasion with commentary, analysis, and even a You Tube video. Here's a sample of what's floating on the web today:

Institute for Justice white paper, Five Years After Kelo:
The Sweeping Backlash Against One of the Supreme Court’s Most-Despised Decisions;
Institute for Justice video, Kelo: Five Years Later;
Owners' Counsel of America's Eminent Domain Law Blog, Today marks 5 year anniversary of Supreme Court's ruling in Kelo v. New London;
Libertarian Party, Libertarians note anniversary of bad Kelo decision;
Hotair.com, Kelo’s fifth anniversary: a triumph of property-rights activism; and
Reason.com, Marking the Fifth Anniversary of Kelo v. City of New London.

If you've read all of this, and still want to read more about Kelo, you really should take a deep breath -- and immediately shut off your computer. Go outside. See a movie. Watch the Wold Cup. Something. . . . Seriously.

Update on Guggenheim Rent Control Case

Rick E. Rayl — Wed, 23 Jun 2010 08:51:19 -0800

Last fall, we told you about a key rent control / takings decision, Guggenheim v. City of Goleta, in which the Ninth Circuit held that a rent control ordinance consituted a taking. In March, we reported that the Ninth Circuit had ordered an en banc hearing of the Guggenheim case.

Yesterday, the Court held the en banc hearing, and while it may be some time before the Court issues its opinion, the hearing itself may provide some good insights about what may happen (and what it may mean in the larger context of regulatory takings claims).

Very generally speaking, the Court was critical of both sides' positions, attacking the property owner's attorney with respect to how long the ordinances had been in place and whether his clients knew about them when they purchased the mobile home park, only to then attack the City's attorney about the magnitude of the transfer of value the ordinance effected.

Ultimately, based on what I understand to have been the tone of the arguments, the Court may avoid the merits and rule on a statute of limitations argument, but time will tell. In the meantime, eminent domain attorney Robert Thomas followed the arguments closely and wrote a comprehensive, three-part summary on his inverse condemnation blog. It makes for great reading:

Condemees Not Always Entitled to Fair Market Value?

Rick E. Rayl — Mon, 21 Jun 2010 09:00:13 -0800

Another recent interesting court decision was somewhat lost in all the excitement last week over (1) the County of Los Angeles v. Glendora Redevelopment Project case striking down Glendora's redevelopment plan for inadequate blight findings and (2) the US Supreme Court decision in the Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection case rejecting a "judicial takings" claim.

That recent decision was by the California Court of Appeal in City of San Jose v. Union Pacific Railroad, which came down a month ago, but received little attention as an unpublished decision on a narrow valuation issue. But on June 11, the Court decided to publish its opinion, making it a whole lot more relevant to us eminent domain attorneys.

In Union Pacific Railroad, the city sought to condemn an easement across a strip of land owned by the railroad company in order to widen an existing street. The court held that the railroad was entitled to only nominal compensation for the portion of the property actually used for the rail line, explaining that a special rule applies in such circumstances pursuant to a 1925 California Supreme Court decision, City of Oakland v. Schenck (1925) 197 Cal. 456.

With some thoughtful analysis, it seems pretty clear that the Court got the decision right. Under the facts as presented in the case, the easement did not diminish the value of the fee given its highest and best use as a rail line, meaning nominal value makes perfect sense -- and constitutes fair market value.

But the Court apparently found the case to be more novel, concluding that it was bound to follow Schenck, but that the end result was a decision that did not afford the owner fair market value for the property taken. In my opinion, the Court's analysis is wrong, even though its decision was right.

For more details about the case, feel free to read my E-Alert, Court of Appeal Holds that a Condemnee is Not Always Entitled to Fair Market Value – But is That Really What the Court Means?

Supreme Court Issues Decision in Florida Beach Takings Case

Rick E. Rayl — Thu, 17 Jun 2010 12:39:28 -0800

The Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection case received considerable attention both before the Supreme Court agreed to hear it, and following the very colorful oral argument before the Court last December.

At issue was whether Florida's efforts to restore some of its beaches through depositing 75-feet of sand seaward of the high-tide line rose to the level of a taking due to the restoration work's causing former beach-front owners' property lines to be moved further away from the ocean water.

What made the case even more interesting was that by the time it got to the US Supreme Court, the issue was framed as whether the Florida Supreme Court's decision in favor of the state constituted a "judicial taking" of property -- a concept first recognized in a 1967 concurring opinion by former Justice Potter Stewart in Hughes v. Washington, in which he explained that “a sudden change in state law, unpredictable in terms of the relevant precedents” could qualify as a taking. In the nearly half-century since Justice Stewart posited the concept of a "judicial taking," no court has upheld such a claim.

Today's opinion is almost as complicated as the archaic law of littoral rights, accretion, and avulsion that underlies it, with four different groupings of Justices signing on to various portions of three different opinions.

Let's start with the simple part: the Court held unanimously that the Florida Supreme Court's decision did not constitute a taking. The Court upheld the ruling in favor of the state, meaning those beach-front property owners whose property is now a bit further away from the ocean are out of luck.

From there, things get a bit murky. Four Justices signed an opinion authored by Justice Scalia, recognizing the validity of judicial takings claims. Specifically, the Justices concluded that if a court declares that what was once a recognized private property right no longer exists, such a decision qualifies as a taking.

However, they believed that the Florida Supreme Court made no such announcement; rather, they concluded that the Florida court based its decision on existing legal principles. (Note that the other Justices did not reject the idea of a judicial takings claim; they concluded that the Court did not need to reach the issue at all.)

Now, before you call this part of the opinion a big "who cares," in this case, four Justices did not constitute a minority of the panel. In one of the case's odd twists, Justice Stevens recused himself as a result of his personal ownership of some Florida beach property. Thus, this part of the opinion represents half the Court. Still, under long-standing Supreme Court precedent, in the case of a 4-4 tie, the lower court's decision is upheld, and the opinion of the equally divided Court does not constitute binding precedent.

Still, getting half the voting Justices to endorse the idea of a judicial takings claim is not insignificant, and property-rights advocates are already trumpeting this opinion as a "victory" for property owners. For example, Timothy Sandefur of the Pacific Legal Foundation writes in a post entitled Judicial takings in Stop The Beach Renourishment:

Today’s decision gives hope to millions of American property owners whose right to their homes, businesses, and other property is often at the mercy of judges who are willing to totally rewrite the law to expand government at their expense.

It remains to be seen whether this decision will open a new floodgate of litigation against judges. When and if the day finally comes where a court upholds a "judicial takings" claim, one more interesting issue remains: who pays the judgment?

New Published Decision Strikes Down Blight Findings

Rick E. Rayl — Wed, 16 Jun 2010 10:51:52 -0800

One of the big issues in eminent domain over the past five years has been the role of blight in justifying eminent domain for redevelopment purposes. The seminal decision (that started all the ruckus) -- Kelo v. City of New London -- involved the use of eminent domain for redevelopment purposes where the city did not even pretend it was acting to eliminate blight.

Kelo had little direct impact on California's eminent domain law, because even before the Supreme Court issued its opinion in 2005, California's law allowed eminent domain for redevelopment purposes only upon a proper showing of blight. In other words, California law did not allow eminent domain for pure economic development.

Following Kelo, however, public scrutiny on eminent domain and, in particular, eminent domain for redevelopment purposes, created a nationwide backlash. Most states enacted some form of eminent domain reform. In California, the reforms included SB 1206, which contained some tweaks to the law involving blight findings. More importantly, however, it seemed clear that courts would be way more likely to examine critically an agency's blight findings in the wake of the Kelo backlash.

Yesterday, the Sixth District California Court of Appeal issued its decision in County of Los Angeles v. Glendora Redevelopment Project. There, the county sued Glendora, claiming that Glendora had not made proper blight findings in enacting its redevelopment plan. The opinion describes the trial court's ruling as follows:

“Glendora’s findings of blight are not supported by substantial evidence” in the administrative record. Furthermore, the court concluded, given the absence of blight, “Glendora is without eminent domain authority in this instance.”

The Court of Appeal examined the four requisites for a proper blight finding:

The area must be “predominantly urbanized";
The area must be “characterized by” one or more conditions of physical blight;
The area must be “characterized by” one or more conditions of economic blight; and
These “blighting conditions must predominate in such a way as to affect the utilization of the area, causing a physical and economic burden on the community.”

In a painstaking analysis, the Court held that Glendora had not met the "physical blight" test. The court analyzed each of four statutory bases for a physical blight determination: (1) unsafe or unhealthy buildings; (2) code violations; (3) dilapidation and deterioration; and/or (4) defective design or construction. Finding no substantial evidence in the record of any of these conditions, the court invalidated the redevelopment plan.

The significance of this opinion lies not just in the holding itself, but in the court's willingness to scrutinize the blight findings, rather than merely deferring to the agency's determination. This is precisely the type of analysis that seemed likely in Kelo's wake. Whether this is the start of a trend remains to be seen.

Government Considering Options for Pacific Electric Railroad Right of Way

Rick E. Rayl — Tue, 15 Jun 2010 13:08:31 -0800

From 1901 to 1961, the Pacific Electric Railway -- or the "Red Car" -- operated as one of Southern California's primary mass transit options, connecting Orange and Los Angeles Counties in a large series of rail corridors. Now, officials are examining ways to reuse the West Santa Ana Branch Corridor, an abandoned 20-mile rail corridor running from Santa Ana to Paramount.

According to a June 14 Orange County Register article, "Is reusing the old Pacific Electric Railway a possibility?, the hope is that someone can find a way to use the abandoned rail line to

connect the Los Angeles Metro Blue Line, Metro Green Line, and Union Station on the north end, and the Santa Ana Regional Transportation Center on the south end.

I have no idea whether such a project is economically feasible or whether it will get off the ground. However, the ever-increasing costs of major right-of-way projects, coupled with the public's aversion to the government's use of eminent domain (often required for such projects), suggests that it makes a lot of sense to study whether an intact, existing right of way can be reused.

Whether anything ever comes of this, I like the fact that officials are studying the issue. We'll see what happens.

Note: Photo from the National Archives, Pacific Region, in Laguna Niguel, California.

Vista Redevelopment Agency Acquires Additional Property

Brad Kuhn — Fri, 11 Jun 2010 08:41:20 -0800

We've previously reported on the City of Vista's moving forward with the use of eminent domain to acquire the Riviera Motel and other properties in order to assemble property for an auto mall. It appears that the eminent domain dispute has now reached a resolution, as the North County Times is reporting that Vista city council approved a settlement with the motel owner and another nearby property owner.

According to the article, "VISTA: City approves $3.2 million in property purchases," the Riviera Motel owner is receiving compensation of $1.65 million for the .71-acre property, plus $345,000 for fixtures and equipment, business goodwill, and relocation (since the owner lived at the motel). The owner had previously been offered $1.65 million, so it appears he did not receive any additional compensation for the property's value. He did, however, receive the additional $345,000 for the other items of compensation. The owner is also being provided an additional $5,000 for the costs of obtaining an independent appraisal, and the redevelopment agency's promise to contribute $155,000 if the owner decides to open up a new hotel in Vista in the future.

Other property appears to still be needed for the redevelopment agency's plans.