Courts have issued four recent court decisions regarding eminent domain that suggest that acquiring property through eminent domain is an increasingly costly prospect for the government.
None of the four decisions addressed whether the government had the right to take the property in question. Rather, the cases dealt with procedure and valuation:
• A state appellate court ruled that the valuation date of condemned land was delayed because the government agency deposited "substantially less" than probable value when filing condemnation proceedings, resulting in a larger award to the property owner. The decision appeared to erase a bright-line rule established last year by the state Supreme Court.
• An appellate court rejected a business's request for relocation payment because the business filed its claim too late. However, the court may have eased the process by which property owners seek relocation expense reimbursement.
• An appellate court overturned an award of attorney's fees to a property owner because the court found that the public agency did not abide by the advice of its appraiser, who apparently made a number of errors.
• A San Diego County jury awarded a property owner $26.5 million for Caltrans' taking of 2.8 acres of vacant land needed for a State Route 905 freeway project. The award included $25.2 million in damages because the jury found that Caltrans' taking eliminated development potential on the property owner's remaining 55 acres, and the taking cost the property owner an earlier potential business deal.
Perhaps the most important decision is the one regarding valuation dates. In 2007, the state Supreme Court ruled the valuation date in a "quick take" proceeding is the date on which the government agency deposits probable compensation with the court, even though that date might be months or years before commencement of a trial. (Mt. San Jacinto Community College District v. Superior Court, (2007) 40 Cal.4th 648; see CP&DR Legal Digest, April 2007). The distinction in dates is important because it can mean a great deal of money during times of rising real estate values.
Although the state Supreme Court appeared to establish a bright-line rule, the Fourth District Court of Appeal declined to apply it in a case from San Diego. In September 2001, the San Diego Metropolitan Transit Development Board (MTDB) filed a complaint in eminent domain against RV Communities and deposited $79,000 as the probable amount of just compensation. The MTDB sought about an acre of property for the Mission Valley East trolley line, plus a 50,000-square-foot temporary construction and grading easement, and a 5,000-square-foot drainage easement.
RV Communities filed a counter-suit and there was extensive procedural activity before RV Communities in February 2003 asked that the deposit of probable compensation be raised to $300,000. The board deposited the money and the trial began. First, San Diego County Superior Court Judge Thomas Lavoy ruled that MTDB had taken 20,000 square feet by inverse condemnation because of grading. A jury then considered the valuation issues and ultimately awarded the property owner $1.1 million for the directly condemned land, $576,000 for land taken by inverse condemnation, $140,000 for the temporary construction easement, $78,000 for the drainage easement, and $470,000 in severance damages for the loss of future use of the property — a total of nearly $2.4 million.
On appeal, MTDB argued that the trial court had improperly changed the date of valuation from September 2001, when the board deposited probable compensation, to February 2003, when the trial started. During the interim, property values skyrocketed in San Diego. In a 2005 decision, the Fourth District Court of Appeal, Division One, upheld the lower court. However, the state Supreme Court ordered the appellate panel to reconsider in light of Mt. San Jacinto. The Fourth District did so, but did not change its conclusion.
"Mt. San Jacinto is distinguishable from the instant case because here it is undisputed that MTDB's deposit was substantially less than the probable amount of RV's just compensation for the condemned property," Justice Richard Huffman wrote for the court. Instead, because the amount the board deposited was less than one-third the amount awarded for the condemned land, it was as if there had been no up-front deposit of probable compensation, the court found. Moreover, the board's own appraiser conceded that the original deposit should have been $300,000, not $79,000, and MTDB did not deposit the larger amount until just before the trial commenced.
"[I]f under the circumstances of a particular case, using the valuation date prescribed by law for condemned property will not satisfy the constitutional requirement of just compensation, the court has inherent authority to use a valuation date that will satisfy that constitutional requirement," Huffman wrote.
While the government lost the San Diego case, it won one from Hawaiian Gardens — for the most part.
In 1993, the Hawaiian Gardens Redevelopment Agency acquired a Plowboy grocery store under threat of eminent domain. Two years later, the Plowboy store closed. At about that time, Bi-Rite Meat Provisions, which operated a specialty meat and fish market within Plowboy, filed an inverse condemnation suit against the redevelopment agency as a result of Bi-Rite's displacement. In 1996, a jury awarded Bi-Rite $800,000 for loss of goodwill, and the city agreed to pay another $93,000 to compensate Bi-Rite for immovable property and improvements. The city paid the money in full on July 6, 2000. Plowboy and Bi-Rite eventually opened a new store in Fountain Valley in May 2003.
Bi-Rite sent the redevelopment agency a number of letters regarding relocation reimbursement and in late 2004 sued. The agency contended Bi-Rite sought reimbursement too late, and a trial court judge agreed.
On appeal, a three-judge panel of the Second District, Division Seven, wrestled with the administrative record before concluding that a September 2004 letter from Bi-Rite substantially complied with the statutory claim procedure requirement. But the letter was too late, the court ruled, because a claim for relocation expenses must be filed within 18 months of final payment of judgment (January 6, 2002) or 18 months from when the claimant moves out (about April 1997).
That part of the ruling was not a major surprise. However, the court's determination that a September 3, 2004, letter to the agency "substantially complies with the claim procedure" appeared to break new ground. Typically, a claimant must file forms specifically created to begin the process.
An analysis by Nossaman, Guthner, Knox, Elliott attorneys Karen McLaurin and Kathlynn Smith said, "After this decision, agencies must be aware that correspondence sent to them on behalf of a displacee may be construed as a ‘claim' under the state relocation assistance program if it sufficiently describes the claim and the basis for it."
The third case involved attorney's fees. The Long Beach Redevelopment Agency used eminent domain to acquire about an acre and a half of land owned by Lewis and Nancy Morales. The agency's appraiser valued the property at $2 million; the agency ended up offering $2.7 million. The Moraleses demanded $3.5 million. In 2005, a jury settled on $3.45 million as just compensation. The property owners then sought attorney's fees, which the court awarded. The agency appealed, and the Second District, Division Four, threw out the award.
Typically, the court noted, attorney's fees are awarded in eminent domain cases where the government offers less than 60% of the jury's verdict. Attorney's fees are not awarded where the government offers more than 85% of the eventual verdict. In this case, the public agency offered about 78%, so it fell in a gray area.
The trial court and the property owners said errors by the agency's appraiser provided evidence of a lack of good faith, care and accuracy, and, therefore, attorney's fees were warranted. But what mattered, the Second District ruled, was the actual offer from the agency's board, not the appraiser's recommendation.
"The [trial] court was required to evaluate the good faith and accuracy of the agency in formulating its final offer," the court ruled. "It was not called upon to evaluate the agency's appraiser or his early appraisals, particularly where the agency rejected his recommendation and independently formulated its final offer." The Second District returned the case to the trial court for reconsideration of attorney's fees.
The final case was decided only at the trial court level, but it has already gained attention because the jury's award so far exceeded the government's offer of compensation. It involves Caltrans's acquisition by eminent domain of 2.8 acres in Otay Mesa from Anderprises, Inc. for the 905 freeway. In 2006, Caltrans offered $172,000 for the vacant land. The property owners argued that Caltrans had delayed the project for nine years, costing them rental income from a trucking company, which reportedly backed out of a deal because of the potential freeway. The landowners also argued that Caltrans' condemnation would make their property worthless because the new freeway would cut off the property's only access to a public street. Caltrans countered that the property is zoned for open space and has alternative access.
In late December, a jury awarded Anderprises $1.3 million for the land, $5.1 million for lost rent due to Caltrans delays, and $20.1 million in severance damages for leaving Anderprises with a landlocked 55-acre parcel, which the property owner argued could have been developed. The agency said it would appeal.
San Diego Metropolitan Transit Development Board v. RV Communities, D042545, 07 C.D.O.S. 14656, 2007 DJDAR 18826. Filed December 21, 2007.
For MTDB: Bruce Beach, Best, Best & Krieger, (619) 525-1300.
For RV Communities: Charles Bird, Luce, Forward, Hamilton & Scripps, (619) 236-1414.
Bi-Rite Meat Provisions Co. v. Redevelopment Agency of the City of Hawaiian Gardens, No. B190481, 07 C.D.O.S. 13267, 2007 DJDAR 17181. Filed October 24, 2007. Ordered published November 19, 2007.
For Bi-Rite: Tina Sibbit, (505) 841-6729.
For the agency: Linda Daube (707) 578-9530.
Redevelopment Agency of the City of Long Beach, California v. Morales, No. B190552, 07 C.D.O.S. 13567, 2007 DJDAR 17541. Filed November 28, 2007. Modified December 18, 2007 at 2007 DJDAR 18571.
For the agency: Don Mike Anthony, Hahn & Hahn, (626) 796-9123.
For Morales: Samuel Salmon, (562) 430-2800.
State of California v. Anderprises, Inc., San Diego County Superior Court No. GIC 865762.
For the state: Glenn Mueller, Caltrans, (619) 645-2412.
For Anderprises: Vincent Bartolotta Jr., Thorsnes, Bartolotta & McGuire, (619) 236-9363.