Eminent Domain: A Year's Highlights

Daily Journal

Let's face it, 2009 was a pretty slow year in eminent domain, at least by recent standards. After the flurry of grass roots (and well funded) reform efforts, new legislation, and court decisions following 2005's Kelo v. New London decision, it is easy to forget that eminent domain is not an area likely to make national headlines on a regular basis.

In 2009, Californians saw no major reform efforts, no significant changes in the law, and only a handful of notable published decisions. This return to a pre-Kelo "normal" may be the most significant development in 2009. Still, it is worth looking back on the year's notable cases, and trying to forecast a little about what 2010 may look like.

In Guggenheim v. City of Goleta (9th Cir. 2009) 582 F.3d 996, the 9th Circuit U.S. Court of Appeals concluded that the city of Goleta's rent control ordinance, which effectively transferred as much as 90 percent of the property's value from the owners of a mobile home park to its tenants (who could then sell their units at a dramatic "premium" because of the guaranteed low rent), constituted a regulatory taking. The court remanded the case back to the trial court to determine how much compensation the city must pay owners of the park.

In Los Angeles Unified School District v. Pulgarin (2009) 175 Cal.App.4th 101, the court held that a business need not have a written lease in order to recover lost business goodwill. The court reasoned that, on its face, Code of Civil Procedure Section 1263.510 (the statute governing goodwill claims) contains no such limitation, and that the correct inquiry is causation - i.e., whether the taking caused the loss of goodwill, regardless of the nature of the tenancy. In reaching this conclusion, the court recognized that a long-term lease and/or enforceable options to extend the lease term are both relevant to determining the existence and amount of goodwill. The court specifically noted, however, that even in the absence of those things, a business owner could establish a goodwill claim if the business possessed sufficient security in its tenancy to warrant a finding that goodwill existed.

In People ex rel. Dept. of Transportation v. Acosta (2009) 178 Cal.App.4th 762, Caltrans sought to avoid a goodwill claim, arguing that the gas station franchisee seeking to recover lost goodwill was preempted from stating such a claim by the Petroleum Practices Marketing Act. The Act governs many petroleum supply contracts, and is intended to protect franchised gasoline distributors and retailers against arbitrary or discriminatory termination or nonrenewal of franchises. The court rejected Caltrans' claim, holding that the Act's restrictions have nothing to do with compensation in eminent domain cases. The court upheld the franchisee's recovery of lost goodwill, and also awarded the franchisee its litigation expenses.

In City of Stockton v. Marina Towers LLC, et al. (2009) 171 Cal.App.4th 93, the court held that the project description in the city's resolution of necessity was so vague, uncertain and sweeping in scope that it failed to specify a proper "public use." The breadth of the city's resolution was not surprising, as the city did not decide how it planned to use the property until after deciding to condemn it. According to the court, however, the resolution's breadth wasn't just unsurprising, it was improper and qualified as a gross abuse of discretion, which defeated the city's right to take. To make matters worse, while the case was pending, the city figured out what it wanted to do with the property - and it built a new stadium while the case was pending.

In light of the fact that a public use had attached by the time of the decision, the court ordered a conditional dismissal, affording the city an opportunity to adopt a new resolution of necessity for the property that contained an adequate description of the "proposed" project. The court also awarded the owner its reasonable litigation expenses in defending the action. (The subsequent chapter in the Marina Towers case commenced on Dec. 30, 2009, as the city amended its complaint after adopting a new resolution of the necessity. The case is still pending.)

In Montara Water & San. Dist. v. County of San Mateo (N.D. Cal. 2009) 598 F.Supp.2d 1070, a condemnation case took an interesting twist. A water district sought to condemn three wells owned by the county. The district obtained an order for prejudgment possession, but the condemnation action triggered a reversionary clause in the deed by which the county had originally obtained title. The prior owner - the federal government - exercised its right of reversion, once again becoming the owner of the wells that were the subject of the condemnation. Since the federal government now owned the wells, the water district lacked the right to condemn them, ending the condemnation action.

In Hauselt v. County of Butte (2009) 172 Cal.App.4th 550, 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. At issue was whether the court should analyze the county's conduct under a strict liability or a "reasonableness" standard. 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.

Kearney v. Foley & Lardner (2009) 566 F.3d 826 arose from an earlier state court condemnation action. After trial of the condemnation action, the property owner learned that the condemning agency had withheld key documents during discovery, and the owner thereafter sued the condemning agency's attorneys in federal court. The attorneys filed a motion to dismiss, which the district court granted. However, the 9th Circuit Court of Appeals reversed, allowing certain of the claims to proceed on the merits against the attorneys. While there is as of yet no final decision on the merits, the mere fact that the 9th Circuit is willing to entertain what is effectively a collateral attack on a state court condemnation action should cause concern for practitioners considering an effort to withhold key information. And, if the attorneys are ultimately held liable, the case will generate significant interest.

Murphy v. Burch (2009) 46 Cal.4th 157 was not actually a condemnation case, but the right to take became a key aspect of the court's analysis. At issue was whether an easement by necessity can arise where the federal government creates a landlocked parcel. More particularly, where the federal government transfers part of the property it owns, leaving its remaining property landlocked, can a successor-in-interest in the now landlocked parcel claim an easement by necessity across the property transferred? The court held that no easement of necessity could arise because strict necessity did not exist at the time the parcel became landlocked. The reason: at the time the landlocked parcel was created, its owner - the federal government - possessed the power of eminent domain, which could have been used to obtain access.

2009 probably gives us a pretty good idea what 2010 will look like. No major reform efforts appear anywhere on the horizon. Ads for "Proposition X" are not in our immediate future. We are likely to see new cases involving inverse condemnation/regulatory takings claims; this seems to be a pretty hot issue right now. On the other hand, until the economy picks up and developers become more active, we probably should not expect a barrage of such cases.

2010 may be the year we start to see published decisions about the changes to the prejudgment possession rules, along with the other legislative changes enacted in Kelo's aftermath. We may also see right-to-take challenges arising out of Proposition 99, though it may take another year or two for redevelopment agencies to explore its limitations at the risk of a public outcry.

In 2010, one key decision will be announced. The U.S. Supreme Court will issue its decision in Stop the Beach Renourishment, Inc. v. Florida Dept. of Environmental Protection. The case, heard in December 2009, generated significant media attention as the Court engaged in a lively debate that appeared to reveal a split of opinion on whether the state of Florida's effort to restore its beaches by adding sand in erosion-prone areas could convert private property from "beach front" to "beach adjacent." The state claims that the beach created by the added sand constitutes new public beach, while the property owners - whose properties had previously extended to the mean high tide line - claim that either they now own the additional property created, or more realistically, that the state must compensate them for the diminution in value their property suffers through the extinguishment of their littoral rights. Although it may not have any impact on California law, the decision is likely to generate considerable attention - especially if the Court sides with the state and holds that the owners are not entitled to compensation.

The other big development for eminent domain practitioners is that stimulus dollars and the overall economic recovery seem to be having an impact on infrastructure projects. In the last quarter of 2009, we saw a marked increase in eminent domain filings, and no reason exists to think that that trend will not continue. And, if the agencies are filing the lawsuits, the bulldozers will not be far behind. 2010 could be a very busy year. 

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. He is also editor of the blog, "California Eminent Domain Report." He can be reached at rrayl@nossaman.com or (949) 833-7800.

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