Eminent Domain 2010: Year in Review

In contrast to 2009, eminent domain had a big year in 2010.  The courts handed down several important decisions, and new legislation was proposed.  On the ground, stimulus dollars reached local agencies and projects moved forward. 

What follows is an eminent domain and takings recap of 2010, along with a forecast about what we might expect in 2011.

Guggenheim v. City of Goleta was one of 2010's most anticipated cases.  Following what appeared to be a landmark 2009 takings decision, the 9th U.S. Circuit Court of Appeals ordered an en banc hearing.  In December, the court issued its new decision, holding that the city's rent control ordinance does not constitute a taking.  Because the city's rent control ordinance existed long before the property owner purchased the property, and the purchase price likely reflected the ordinance's impact on the property's value, the court held that the owner failed to establish the necessary "investment-backed expectations."  Still, the Guggenheim decision goes down as the first time the 9th Circuit reached the merits of such a claim, meaning the decision is not a complete loss for property rights advocates. 

Two other regulatory takings decisions came down in 2010.  MHC Financing Limited Partnership Two v. City of Santee involved another rent control ordinance.  In a 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 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.

One significant business-goodwill opinion was issued in 2010.  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 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. 

City of San Jose v. Union Pacific Railroad was the only other notable valuation opinion.  There, the court seemed to deviate from traditional fair market value rules in awarding the railroad only nominal value for its property.  On closer inspection, however, 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.

Attorney fees issues arose in state and federal cases.  In Tracy Joint Unified School District v. Pombo, the court clarified when attorney fees are recoverable by a property owner under California Code of Civil Procedure Section 1250.410.  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 attorney fees unless the difference in the figures is due to a weighty issue of law and 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 9th Circuit confronted the question of whether a private utility company constitutes 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.

County of Los Angeles v. Glendora Redevelopment Project involved a right-to-take challenge in which 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. 

In June, the U.S. Supreme Court issued its much-anticipated decision in Stop the Beach Renourishment Inc. v. Florida Department of Environmental Protection.  There, 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.  In the Supreme Court, the issue presented was whether a court decision (the Florida Supreme Court's finding of no compensable taking) could qualify as a "judicial taking."  The Court found that no judicial taking had occurred, but did recognize, at least conceptually, the idea of a "judicial taking."

There were also a few developments on the legislative front.  Assembly Bill 2531 would have expanded the Community Redevelopment Association of Los Angeles' eminent domain authority to acquire non-blighted property outside redevelopment areas.  On the eve of the deadline for taking action, Gov. Arnold Schwarzenegger vetoed the bill, noting that it "would violate the primary purpose of redevelopment law."

In November, voters approved Proposition 22, 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 seeks to make it harder for the state to usurp certain local agency funds, including funds directed to redevelopment agencies. 

Looking ahead to 2011, one must still view the political landscape in the context of the U.S. Supreme Court's infamous 2005 Kelo decision.  Since then, there has been heightened scrutiny, and a lot of anger, directed at eminent domain.  However, there appears to be a shift in public perception taking place as we start 2011.

While the public will likely continue to denounce eminent domain for redevelopment purposes, the major infrastructure projects under construction and on the horizon thanks to federal stimulus dollars are generally badly needed and long overdue, will improve the lives of huge segments of the population, and generate large numbers of jobs.  The public may be ready to move past Kelo and embrace these traditional infrastructure projects, even if it means more eminent domain. 

That said, with the passage of Prop. 22 and Kelo more than five years behind us, redevelopment agencies may once again 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.

But even Prop. 22 may not save redevelopment agencies and their budgets if Gov. Jerry Brown has his way.  His Jan. 10 budget proposal would freeze redevelopment agencies' ability to create new contracts or obligations, "disestablish" all redevelopment agencies in the state, effective July 1, and use existing redevelopment agencies' budgets to service existing debt obligations (over time, that money would be distributed to other local agencies for general use).  In other words, redevelopment agencies' very existence is now under attack.

The Legislative Analyst's Office (LAO) issued a report on Jan. 12 that endorses the governor's basic proposal, but warns that he may have understated the debt service – and that implementing the changes may require unraveling several voter-approved constitutional measures.  The LAO recommends immediate urgency legislation to prevent redevelopment agencies from taking on new bonded indebtedness or contractual obligations while the issues are sorted out.  This developing story will be closely watched over the next several months, and may be the story we remember most about 2011.

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/.