Closing the Litigation Floodgates

Daily Journal

For decades, courts and legal commentators alike have struggled with the proper liability standard in inverse condemnation cases arising from flood damage. Some have touted traditional strict inverse-condemnation liability, believing that strict liability is the only way to ensure that the costs of government conduct are spread among the public as a whole, avoiding one person's bearing a disproportionate burden. Others view strict liability as arcane and inappropriate in the flood control context, as it effectively renders the government as an absolute insurer against flood damage.

Such discussions are not mere academic fodder. Just last month, the city of Fargo, N.D., saw the Red River crest its banks at the highest level ever recorded - nearly 25 feet above flood stage. While the city is focused now on dealing with the tragedy and how to clean it up, over the next several years, the focus will shift to who is to blame.

Here in California, no current flooding tragedy fills the front pages, but vast areas of the state, including much of the Sacramento Delta, are prone to flooding. In fact, the Sacramento Delta and its aging levee system is among the highest-risk flood zones in the country. Thus, it is no surprise that California law is replete with difficult cases concerning responsibility for flooding. When, as is often the case, the defendant is a government agency, liability often arises out of claims for inverse condemnation. And, not surprisingly, those government defendants constantly seek justification for avoiding strict liability in favor of the more modern, "reasonableness" test of liability.

Earlier this month, the Court of Appeal in Hauselt v. County of Butte, 2009 DJDAR 4359, issued the latest proclamation on flooding-related inverse condemnation liability. In Hauselt, the court confronted a claim by a property owner that the county's modifications to a drainage channel subjected the owner's property to increased flooding. The court sided with the "reasonableness" camp, holding that the county was not liable unless it acted unreasonably. Because the owner failed to demonstrate that the county's conduct was unreasonable, the court upheld the judgment finding no inverse condemnation liability.

Typically, we think of inverse condemnation as a classic strict liability cause of action. If the government takes or damages private property, it is liable, without regard for the government's intent - or the wisdom of its conduct. The underpinning of this is the belief that no private citizen should be compelled to bear a disproportionate burden of the costs of government conduct meant to benefit the public at large. By imposing strict liability, the costs of government activity are spread among the public as a whole.

In the flood control context, however, a line of cases has evolved that changes traditional strict-liability rules. Those cases hold that the government is liable in inverse condemnation only if its conduct that results in flooding is unreasonable. See, e.g., Belair v. Riverside County Flood Control District, 47 Cal.3d 550 (1988); Locklin v. City of Lafayette, 7 Cal.4th 327 (1994). The rationale is that public policy warrants encouraging the government to undertake flood control projects, and that strict liability whenever flooding nonetheless occurs renders the government effectively an insurer against floods whenever it constructs a flood control project. The potential chilling effect on flood control projects under such a rule warrants a different approach.

Cases in this area tend to turn on two inquiries: whether the damage was caused by intentional government conduct (such as intentionally using one property as a retention basin in order to protect other property from flooding) or by accident (such as a flood occurring despite a flood control project, either because the project does not perform as intended or because the storm event exceeds the design capacity of the project); and whether the flooded property was subject to historical flooding before the government built the flood control project at issue.

Two things became clear. Where the damage was caused by accident and the property was historically subject to flooding, the government is only liable if it acts unreasonably. Conversely, where the government intentionally diverts floodwaters to a property that was not subject to historical flooding, traditional strict liability principles apply. See, e.g., Akins v. State of California, 61 Cal.App.4th 1 (1998). Existing law left some answers less clear, including deciding what rule applies where intentional government conduct increases the flow of water onto property already subject to historical flooding.

The 'Hauselt' Case

In Hauselt v. County of Butte, a property owner purchased a 94-acre almond orchard that he intended to develop with a residential subdivision. Keefer Slough, a privately owned natural watercourse, crossed the property and occasionally received floodwater overflow through a natural drainage. The owner's property had a history of periodic shallow flooding two to three times per decade. The owner contended, however, that the county's actions resulted in an increase in water flow onto the property.

According to the owner, the county's activities included implementing a drainage plan which made Keefer Slough part of the public drainage system; approving adjacent residential subdivisions which drained into Keefer Slough; removing a bridge that previously acted as a "plug" on the flow of water down Keefer Slough; and sponsoring a project to restore the sediment bed of an upstream watercourse, which increased the flow into Keefer Slough. The owner claimed these activities increased the flooding on his property and resulted in a taking of his property for a public use.

The trial court found that the county's activities were not unreasonable, and would not, therefore, give rise to inverse condemnation liability. The trial court also concluded that Keefer Slough is a private watercourse and the county's activities did not transform the slough into a public work or increase the flow of water in the slough on the owner's land.

On appeal, the property owner alleged that the trial court should have applied the strict liability standard instead of a rule of "reasonableness" standard. These two rules can be summarized as follows:

The "reasonableness" rule: This rule arose from various common law theories that sought to allocate liability between private landowners where, for example, either the "upper" landowner diverted water onto the "lower" landowner's property, or the "lower" landowner erected barriers to prevent water incursions, causing water to back up onto the "upper" property. The path to our current law is murky at best, but the bottom line is that today, both the "upper" and the "lower" landowner are expected to act reasonably. See, e.g., Keys v. Romley, 64 Cal.2d 396 (1966). This so-called "reasonableness test" has been translated to inverse condemnation theories as follows: "the public agency is liable if its conduct poses an unreasonable risk of harm to the plaintiff, the unreasonable conduct is a substantial cause of the damage to the plaintiff's property, and the plaintiff has taken reasonable measures to protect his property."

The strict liability standard: This is the classic rule from condemnation theory. It relies on the constitutional principle that the government may not take private property without paying just compensation to the owner. This constitutional requirement contains no "guilt" element: The government is liable any time it "takes" or damages private property, without regard for intent or fault. Under this theory, the government is strictly liable where it appropriates private property in order to protect other property and thereby creates a risk that would not otherwise exist.

Looking at the two-pronged inquiry (intentional vs. accidental and whether the property was historically subject to flooding), the Hauselt court concluded that the key inquiry was whether the property was historically subject to flooding. Because the facts in Hauselt revealed that the property had been subject to "shallow flooding" even before the county's conduct, the reasonableness rule from Locklin and its progeny applied. Though the decision is not a model of clarity on this point, it appears that the court found this to be true without regard for whether the county's conduct arose from an intentional decision to use William Hauselt's property as a flood control basin to facilitate the surrounding property's development, or through conduct that had the unintended consequence of increasing flooding to Hauselt's property.

The Impact

While the case does not confront the issue head on, the potential impact of the Hauselt opinion is that the government can intentionally turn one private property into a retention basin used to divert flood waters from other private property without liability, as long as the government's conduct is reasonable, and the property chosen for the retention basin was subject to historical flooding. And, where the government can show that using a single property as a retention basin protects thousands of acres of other property, establishing reasonableness of the conduct may be a relatively simple task.

Whether a court will actually apply Hauselt in that manner when confronted with such facts remains to be seen (public policy would seem to warrant a different result). For now, however, the commentators who have predicted the increasing use of a reasonableness test in flood damage cases have at least one new sandbag for their levee.

Rick E. Rayl and Bradford B. Kuhn are eminent domain attorneys in the Orange County office of Nossaman. Their practices focus on condemnation, inverse condemnation, and other real estate and business valuation disputes.

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