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The State of Eminent Domain for the New Year

Daily Journal
By: Bradford B. Kuhn, Rick E. Rayl
01/23/12

Looking back over the past few years, we've seen a significant uptick in right of way projects and important case decisions.  Following a relatively quiet 2009, we saw increased activity in 2010, with regulatory takings issues  garnering significant attention.  As we rolled into 2011, the momentum continued, with the status of redevelopment agencies across California dominating the headlines. 

As we look to 2012, we expect another exciting year. What follows is an eminent domain recap of 2011, along with our thoughts on what the right-of-way profession can expect in 2012.

Still fresh in our minds, 2011 ended with a bang (to put it mildly), as the state Supreme Court issued a landmark decision – California Redevelopment Association v. Matosantos, 2011 Cal. LEXIS 13325 - eliminating redevelopment agencies in California.  The decision sets the stage for the dissolution of  redevelopment agencies and the establishment of "successor agencies" with elaborate "oversight committees" to dispose of redevelopment assets, satisfy existing redevelopment obligations, and funnel all remaining redevelopment funds back into the property tax system.  2012 will be focused on the aftermath of the decision and cleaning up the rubble. 

Beyond the redevelopment saga, regulatory takings cases continued to make headlines.  While successful regulatory takings claims are few and far between, in Avenida San Juan Partnership v. City of San Clemente, 201 Cal.App.4th1256, the court held that the city had engaged in spot zoning by treating the property's zoning differently than other similarly-situated properties for an improper purpose, and ultimately found a taking under the Penn Central factors despite the property's not suffering a complete elimination of an economically viable use.  That the court found a taking under Penn Central is particularly significant, as the decision represents the first reported case in California imposing liability under this test. 

In Wardany v. City of San Jacinto, 2011 U.S. Dist. LEXIS 57148, the agency placed a center median in the street, preventing left turns in and out of the owner's property.  The owner claimed the business lost over half its sales as a result.  Despite this impact, the court concluded that there was no compensable taking because: the property retained an economically viable use; and the impairment did not qualify as substantial, as a matter of law, because the measure of "substantial" depends on the physical impairment, not the impact that impairment has on the property.

In Colony Cove Properties v. City of Carson, 640 F.3d 948, the owner of a mobile home park filed suit in federal court, alleging that the city's rent control ordinance deprived the owner of the value of its property while allowing park residents to sell their mobile homes at a premium.  As is often the case, the 9th U.S. Circuit Court of Appeals held that the owner's facial challenge was time barred since it was asserted after the statute of limitations had run, and  the owner's as-applied challenge was unripe since the owner failed to first file an inverse condemnation action in state court.

There was one reported goodwill decision in 2011.  In Galardi Group Franchise & Leasing, LLC v. City of El Cajon, 196 Cal.App.4th 280, the court held that despite a franchisor's involvement in a business, the franchisor fails to qualify for recovery of goodwill unless it has an ownership interest in that business because recovery of goodwill is expressly limited to those "operating a business on the property."  However, the court also held that a franchisee's waiver of its rights to compensation can effect an assignment of those rights to the franchisor, including rights to goodwill losses.

There was one reported decision concerning property valuation.  In Charter Communications Properties v. County of San Luis Obispo, 198 Cal.App.4th 1089, the court held that when assessing the fair market value of a private utility's possessory interest in the public right-of-way, the county tax assessor can disregard the utility's agreed-upon remaining term of possession and instead assume a much longer anticipated term of possession to match reality.  This may result in private utility companies experiencing much higher assessed values for their leasehold interests in public roads and highways.

Moving beyond valuation issues, there were two inverse condemnation decisions of note.  In City of Los Angeles v. Superior Court (Plotkin), 194 Cal.App.4th 210, a number of property owners sued the city for inverse condemnation, alleging that the city created "condemnation blight" by buying nearby properties in their neighborhoods, relocating the residents, demolishing the structures, and leaving the properties vacant.  The court held that the city was not liable for inverse condemnation because the city's acquisitions were voluntary and unrelated to a public project.  And in Joffe v. City of Huntington Park, 201 Cal.App.4th 492, the court declared that in determining a property and business owner's entitlement to precondemnation damages, the appropriate analysis focuses on the agency's conduct, not the impacts suffered by the owner.  Thus, despite the fact that the business was forced to close, meaning the property's owner lost its only tenant, the agency was not liable for precondemnation damages because it had neither acted unreasonably nor engaged in unreasonable conduct.

There were three reported decisions on purely procedural issues, including another decision by the state Supreme Court, Los Angeles County Metropolitan Transportation Authority v. Alameda Produce Market, 2011 Cal. LEXIS 12171.  There, the Court held that one party's withdrawal of a condemnation deposit does not result in the waiver of any other party's right-to-take challenge, despite the general rule that withdrawal of a condemnation deposit effects such a waiver pursuant to Code of Civil Procedure Section 1255.260.

In City of Gardena v. Rikuo Corp., 192 Cal.App.4th 595, the parties entered into a stipulated judgment and left $750,000 on deposit to address ongoing environmental remediation.  When a dispute arose over the court's distribution of those funds, the property owner appealed from the post-judgment order.  The court dismissed the appeal, concluding that the order was not appealable because post-judgment orders are only appealable if they follow a judgment that is itself appealable, and the initial stipulated judgment was not appealable.
 
Finally, in Cobb v. City of Stockton, 192 Cal.App.4th 65, a property owner filed an inverse condemnation action against the city after an earlier condemnation action was dismissed nine years after it was filed.  The court held that the claims were timely because it did not accrue until the city's occupation of the property became wrongful, which occurred when the underlying eminent domain action was dismissed.

So what can we expect as we move into 2012?  In (at least) the first part of 2012, most attention will continue to be focused on the redevelopment saga.  Either through efforts to reincarnate some version of redevelopment, simple clean-up legislation and/or the winding down process, this is sure to be an area in the news. 
We also expect regulatory takings decisions to be in the news.  The shift towards greater scrutiny of government regulation and the renewed focus on the Penn Central test will likely be themes throughout 2012.
 
And, finally, we expect to see an increasing split in the way the public perceives the use of eminent domain.  As Kelo recedes in many people's minds, the general "eminent domain abuse" mentality also recedes from the mainstream public.  And, with the economy continuing to falter and major infrastructure projects providing large numbers of jobs, we expect more public support for traditional uses of eminent domain for public works projects.

On the other hand, if agencies find ways to implement redevelopment-type strategies or otherwise engage in questionable uses of eminent domain, the Kelo torch-bearers will likely surface quickly, and in mass.
 
Rick E. Rayl is a partner at Nossaman in the firm's Eminent Domain and Valuation and Real Estate Practice Groups and an experienced trial attorney dealing with eminent domain, inverse condemnation and other real estate and business disputes. He is editor of the blog, "California Eminent Domain Report." He can be reached at rrayl@nossaman.com or (949) 833-7800.

Bradford B. Kuhn is an associate in Nossaman's Eminent Domain and Valuation Practice Group. He frequently blogs about eminent domain news and developments at http://www.CaliforniaEminentDomainReport.com/.

     
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