Money and Dirt: A blog on legal issues impacting California real estate investment, development, and secured lending

Notable Eminent Domain and Inverse Condemnation Cases from 2016

Here is a list of California’s appellate cases from 2016 in the eminent domain and inverse condemnation arenas that caught our attention:

Property Reserve, Inc. v. Superior Court (2016) 1 Cal.5th 151

  • The California Supreme Court validated the use of the precondemnation entry and testing statutes.
  • The California Department of Water Resources petitioned the trial court for orders to enter private properties and conduct environmental and geological studies under Code of Civil Procedure sections 1245.010-1245.060 (which generally authorize entry onto private property before filing an eminent domain action).
  • The trial court issued two orders.  The first order authorized the Department to enter the property to conduct the environmental studies.  But the second order denied the request to conduct drilling.  The trial court held that drilling could not be conducted unless the Department utilized a normal eminent domain action.
  • On appeal, the Court of Appeal upheld the trial court’s order denying the geological testing and reversed the order allowing environmental testing.
  • The Supreme Court reversed the Court of Appeal’s decision in its entirety, holding that the precondemnation entry and testing statutes provide a constitutionally valid eminent domain proceeding, so long as a jury is provided to determine potential damages arising from the agency’s entry and testing.

City of Perris v. Stamper (2016) 1 Cal.5th 576

  • The California Supreme Court addressed the interplay between the “Porterville doctrine” and the “project influence” rule.
  • The property owners bought a 9-acre parcel that was zoned light industrial.  The city amended its General Plan and revised circulation elements in the plan to provide for truck circulation routes.  The city sought to acquire a 1.66 acre strip for a street realignment to facilitate one of the truck routes, which split the remainder property into two triangular parcels.
  • Relying on the Porterville doctrine (City of Porterville v. Young (1987) 195 Cal.App.3d 1260), the city valued the property as undevelopable agricultural land because it would not have approved any development absent a dedication by the owner of the condemned strip of land.  The property owners argued that the project influence rule embodied in Code of Civil Procedure section 1263.330 barred the city from introducing evidence that it would have required a dedication.
  • The Supreme Court concluded that the project influence rule applies, and the Porterville doctrine does not, when it is probable at the time a dedication requirement is established that the property subject to the dedication will be included in a public project for which condemnation will be sought.

Boxer v. City of Beverly Hills (2016) 246 Cal.App.4th 1212

  • This case addressed a claim for inverse condemnation based on the diminished view from the plaintiffs’ properties due to trees planted on neighboring city property.
  • The plaintiffs owned homes along Spalding Drive in Beverly Hills.  They sued the city for inverse condemnation, claiming that coastal redwood trees planted by the city in nearby Roxbury Park impaired their views from their backyards, from which they could previously see the hills of Beverly Hills, the Hollywood Hills, the Los Angeles basin, downtown Los Angeles, and (on a clear day) Mount Baldy.
  • The trial court sustained the city’s demurrer, and the Court of Appeal affirmed.  The court held that for inverse condemnation cases based on an “intangible intrusion” (as opposed to claims based on a physical invasion or physical damage), the plaintiff must allege “that the intrusion has resulted in a burden on the property that is direct, substantial, and peculiar to the property itself.”  This standard cannot be satisfied merely by alleging the loss of a view, because in California “a landowner has no right to an unobstructed view over adjoining property.”

Santa Clarita Organization for Planning and the Environment v. Castaic Lake Water Agency (2016) 1 Cal.App.5th 1084

  • This case featured a petition for writ of mandate challenging the atypical use of eminent domain by a public water agency to acquire all the stock of a private water company.
  • The petitioners asserted two central arguments, one based on the Water Code and the other based on the California Constitution.
  • Petitioners’ first argument was that the agency violated Water Code section 12944.7 (which generally bars an agency from selling water at retail, subject to certain exceptions) because it was the “alter ego” of the water company whose stock it acquired, and the water company made retail sales.  The Court of Appeal rejected this argument, noting the high standards for proving alter ego.  Mere stock ownership and “some common personnel” did not satisfy the alter ego standard.
  • Petitioners’ second argument was that the agency violated article 16, section 17 of the California Constitution, which generally prohibits the state or its agencies from loaning credit to, or being interested in, the stock of any company.  The Court of Appeal rejected this argument, holding that section 17 does not apply when there is a complete stock acquisition by an agency rather than a lending of credit.  Further, the court noted that section 17 contains an exception allowing an agency’s ownership of stock in any corporation for the purpose of furnishing a supply of water to the public.

The People ex rel. Dept. of Transportation v. Presidio Performing Arts Foundation (2016) 5 Cal.App.5th 190

  • This case addressed the valuation of goodwill in an eminent domain proceeding.
  • Cal Trans acquired property for the Doyle Drive Replacement Project, necessitating a nonprofit foundation to relocate.  The trial court ruled that the nonprofit failed to establish entitlement to lost goodwill under Code of Civil Procedure section 1263.510 because although the nonprofit proved that it had some goodwill before the taking and lost goodwill due to the taking, it did not prove a quantitative loss of goodwill by calculating its pre-taking goodwill value (total business value minus value of the tangible assets) versus its post-taking goodwill value.
  • The Court of Appeal reversed, holding that for purposes of the threshold determination of entitlement to compensation, a party need only establish that the taking caused some amount of lost goodwill due to the taking, but need not quantify the amount of lost goodwill in the manner required by the trial court.  The court noted that there are different ways of proving the loss of goodwill in the entitlement phase.
  • The court also concluded that the goodwill statute does not limit compensation to a profitable business.  The goal, the court noted, is “just compensation,” not “compensation for the already profitable.”

Pacific Shores Property Owners Assn. v. Dept. of Fish & Wildlife (2016) 244 Cal.App.4th 12

  • This case featured a claim for inverse condemnation following a state agency’s assumption of control of a lagoon area and the agency’s determination to provide less flood protection compared to what was historically provided.
  • A large coastal lagoon named Lake Earl (near Crescent City) was subject to periodic flooding.  Historically, nearby residents (and later the County) would regularly breach a sandbar at the edge of the lagoon near the ocean when water levels rose above four feet mean sea level (msl).  Breaching the sandbar allowed the lagoon to drain into the ocean, and prevented flooding of the nearby residential areas.  At some point, the Department of Fish & Wildlife assumed ownership and control of the lagoon area.  The practice of breaching the sandbar at levels between 4 and 8 feet msl went on for many years, pursuant to various temporary and emergency permits.
  • Finally, in 2005 the Department approved a permanent Management Plan, which called for breaching the sandbar at 8 to 10 feet msl.  The higher level was chosen due to concerns that breaching the sandbar at lower levels harmed the lagoon habitat of fish and other wildlife.  But the higher breach level resulted in flooding of the residential areas surrounding the lagoon.  The owners sued for inverse condemnation in 2007.
  • The Court of Appeal’s ruling touched on two important issues: (1) accrual of the statute of limitations; and (2) strict liability.
  • The court held that the owners’ claims for inverse condemnation (governed by a three-year statute of limitations) did not accrue until the Department adopted its permanent, comprehensive Management Plan in 2005, which made future flooding of the plaintiffs’ property a certainty.  Thus, the claims filed in 2007 were timely.
  • The court also held that the Department was strictly liable.  Strict liability applied because the plaintiffs’ real property suffered physical injury caused by the Department’s deliberate actions.  The court noted the exception to the rule of strict liability for most “flood control” improvements, under which a rule of “reasonableness” would apply.  But here, the project was not a flood control project.  The court noted the project would operate not primarily to protect against flooding, but to protect environmental resources at the cost of allowing flooding.

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