2010 Eminent Domain Year in Review

In contrast to 2009, eminent domain had a big year in 2010.  The courts handed down a number of important decisions, and there was even an attempt to pass some new legislation.  On the ground, stimulus dollars appeared to reach local agencies and projects started moving forward.  And at the polls, Proposition 22 passed in November, helping to secure redevelopment agencies' coffers. 

As 2011 evolves, we expect another exciting year.  Stimulus dollars mean long-delayed projects will finally be built, and there are already some cases awaiting decision that should provide fireworks. 

What follows is an eminent domain recap of 2010, along with our thoughts on what the Right of Way profession can expect in 2011.

Regulatory Takings/Inverse Condemnation

The most anticipated 2010 case was almost certainly Guggenheim v. City of Goleta.  Following what we thought would be a landmark takings decision in 2009, the Ninth Circuit Court of Appeals ordered a rehearing of the Guggenheim case, en banc.  In December, the Court issued its new decision, this time holding that the city's rent control ordinance did not constitute a taking.  Because the city's rent control ordinance was in place long before the property owner purchased the property, and the purchase price likely reflected the ordinance's impact on the property's value, the owner failed to establish the necessary "investment-backed expectations."  That said, the Guggenheim decision still goes down as the first time the Ninth Circuit ever reached the merits of such a claim, meaning the decision is not a complete loss for property rights advocates. 

In MHC Financing Limited Partnership Two v. City of Santee, another court confronted a rent control ordinance.  In a much more typical regulatory takings decision, the court rejected the claim on procedural grounds, never reaching the merits.  In a painful twist for the owner, the court held that its "as applied" challenge to the rent control ordinance was not ripe, while its "facial" challenge was stale. 

In Adams Bros. Farming v. County of Santa Barbara, the owner argued that the county effected a taking by improperly designating 95 percent of the owner's property as wetlands.  The state court concluded that the claim was not ripe, and when the owner thereafter sued in federal court, the Court held that the claim was barred under principles of res judicata.

Business Goodwill

In Los Angeles Unified School District v. Casasola, the Court held that business owners cannot recover as lost business goodwill anything that falls within the scope of California's Relocation Assistance Act, regardless of whether the losses are actually recoverable under the Act.  The decision has the effect of precluding compensation for any reestablishment costs the owner incurs above the Relocation Act's $10,000 cap, a paltry sum in the context of any large-scale relocation. 

Property Valuation

In City of San Jose v. Union Pacific Railroad, the Court addressed the amount of compensation to which a railroad was entitled as a result of a street widening.  While the Court seemed to deviate from traditional fair market value rules, on closer inspection, the Court simply applied a traditional highest and best use analysis, concluding that when an agency acquires an easement across a rail line for a street, nominal compensation is appropriate since the taking has no measurable impact on the underlying fee value.

Attorneys' Fees

In Tracy Joint Unified School District v. Pombo, the Court clarified when attorneys' fees are recoverable by a property owner.  Where the agency's final offer is unreasonable and the owner's final demand is reasonable, agencies typically seek to avoid paying attorneys' fees by asserting that they acted in "good faith."  The Pombo court concluded that mere "good faith" reliance on the agency's appraisal is not enough; where the agency's offer is way off, it will be on the hook for attorneys' fees unless (i) the difference in the figures is due to a weighty issue of law and (ii) the agency proves good faith efforts to negotiate, including a showing that it took the owner's appraisal into consideration in framing its final offer.

In Transwestern Pipeline Co. v. 17.19 Acres of Property, the Ninth Circuit confronted the question of whether a private utility company constituted a "federal agency" when exercising the power of eminent domain under a license from the Federal Energy Regulatory Commission (FERC).  At stake was whether the utility company was liable to the property owner for attorneys' fees when it abandoned the condemnation action.  The Court concluded that the utility company did not qualify as a "federal agency," and therefore was not liable for fees.

Right to Take

In County of Los Angeles v. Glendora Redevelopment Project, the Court struck down an agency's redevelopment plan for inadequate blight findings.  In particular, the Court held that the agency failed to present substantial evidence to support the "physical blight" test, and therefore could not exercise the power of eminent domain.  The significance of the 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.

Supreme Court Action – and Inaction

In Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection, beachfront property owners alleged that Florida's efforts to restore beaches by depositing sand, which created a new public beach between the owners and the water, resulted in a taking by cutting off the owners' littoral rights (the rights owners possess by owning property that extends to the water's edge).  By the time the case reached the Supreme Court, the issue presented was whether a court decision (here the Florida Supreme Court's decision finding no actionable conduct by the government) could constitute a "judicial taking" of property.  The Court concluded that the decision did not constitute a taking, but did recognize, at least conceptually, the idea of a "judicial taking."

The U. S. Supreme Court had at least three other chances to weigh in on eminent domain issues, and all three seemed like pretty good candidates for review, yet the Court declined to review each of these cases: 

1. Tuck-It-Away, Inc. v. New York State Urban Development Corp., dba Empire State Development Corp., in which the New York Court of Appeals concluded that a government agency's use of eminent domain to transfer property from one private owner directly to another private owner (the University of Columbia – a private institution) was constitutional;

2. 480.00 Acres of Land v. United States, in which an owner's property was acquired as part of the Everglades National Park expansion, and the issue was whether a government's actions must be the primary cause of precondemnation depression of a property's market value, or whether there only needs to be a nexus between the government's actions and the depressed market value to warrant precondemnation damages; and

3. Kimco of Evansville, Inc. v. State of Indiana, in which the owner argued review was necessary to change a fundamentally unfair principle that damages arising from access impairments in eminent domain cases are non-compensable as long as the owner is left with reasonable access.

Legislative Updates

Assembly Bill 2531 proposed to allow the Community Redevelopment Association of Los Angeles to expand its eminent domain authority to acquire non-blighted property outside of its redevelopment area.  On the eve of the deadline for taking action, Governor Schwarzenegger vetoed the bill noting that it "would violate the primary purpose of redevelopment law."

On the other hand, Proposition 22 passed in November, and while the campaigns both for and against it took on the negative tone typical of American politics these days, the bottom line is that its passage will make it harder for the state to usurp certain local agency funds, including funds directed to redevelopment agencies.  California's Redevelopment Association viewed Proposition 22 as providing crucial protection to cash-strapped agencies, all of which undoubtedly breathed a huge collective sigh of relief on November 9. 

Themes for 2011

Since 2005's Kelo decision, we have seen heightened scrutiny, and a lot of anger, directed at eminent domain.  As time passes and stimulus dollars make their way into the system, there appears to be a shift in public perception taking place.  While the public will undoubtedly continue to denounce eminent domain for redevelopment purposes, the major infrastructure projects under construction and on the horizon (1) are generally badly needed and long overdue, (2) will improve the lives of huge segments of the population, and (3) generate large numbers of jobs. 

It appears that the public may be ready to move past Kelo and embrace these traditional infrastructure projects, even if it means more eminent domain.  We've even seen some examples in the past year of the public actually pushing government agencies to use their powers of eminent domain to improve local communities. 

That said, with Proposition 22's passage and Kelo more than five years behind us, redevelopment agencies may once again start to consider eminent domain to implement their projects.  If they do, the public will undoubtedly watch closely, and where redevelopment projects do not have wide-spread public support, the battle cry of Kelo will likely ring out again. 

On the other hand, Proposition 22 will do little to save redevelopment agencies' budgets if Governor Brown has his way.  His January 10 budget proposal would (1) freeze redevelopment agencies' ability to create new contracts or obligations, (2) "disestablish" all redevelopment agencies in the state, effective July 1, and (3) use existing redevelopment agencies' budgets to service existing debt obligations and, over time, to be distributed to other local agencies for general use.  This developing story will be closely watched over the next several months.

Projects to Watch for in 2011

We expect a busy 2011 in the right-of-way profession.  Things to watch for:

• The 91 freeway is one of the most congested in California, and efforts have been ongoing for years to alleviate the gridlock.  Late last year, AB 2098 was passed, opening the door for the Riverside County Transportation Commission (RCTC) to utilize a design-build process to deliver expansion of SR-91 and I-15.  Construction is scheduled to commence in 2012 on the $1.3 billion freeway widening project.  
• In the last week of December 2010, a contract was awarded for $33.8 million in Recovery Act funds to be used towards the Colton Grade Separation Project in San Bernardino, which will elevate two Union Pacific Railroad tracks over two Burlington Northern Santa Fe Railway tracks.  
• Also during the last week of December 2010, the U.S. Department of Transportation announced a $46 million grant agreement for the final phase of the Doyle Drive -- or Presidio Parkway -- Project in San Francisco, which will include a redesign of the road and improve access to the Presidio.
• On January 5, 2011, the Los Angeles County MTA announced that the Federal Transit Administration has given the MTA formal approval to commence preliminary engineering work on the Westside Subway Extension and the Regional Connector, another proposed subway project.  This approval signals the likelihood that the FTA will approve the projects as part of its New Starts program, a key federal funding component for large-scale transit projects.
• Ever since the devastating 2008 Metrolink accident in Chatsworth, the public has demanded a safer commuter rail system.  SB 1371 will enable the Southern California Regional Rail Authority (SCRRA) to move forward with a $200 million rail safety program to implement Positive Train Control throughout the Metrolink system.

Bradford B. Kuhn is a member of Nossaman's Eminent Domain and Valuation Practice Group and specializes in real estate and business litigation with an emphasis on eminent domain, inverse condemnation, and other real estate disputes.  He can be reached at bkuhn@nossaman.com or 949.833.7800.

Rick E. Rayl is the Chair of Nossaman's Eminent Domain and Valuation Practice Group and a member of the Firm's Real Estate Practice Group.  Mr. Rayl is an experienced trial attorney dealing with eminent domain, inverse condemnation, and other real estate and business disputes.  He is also editor of the blog, "California Eminent Domain Report."  He can be reached at rrayl@nossaman.com or 949.833.7800.