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Court Issues New Opinion on Regulatory Takings and “Klopping” Damages

Inverse condemnation is the flip-side of eminent domain.  With eminent domain, a public agency files a lawsuit to condemn (takes ownership of) a particular property interest and must pay the owner “just compensation.”  With inverse condemnation, a public agency may be held liable for “taking” private property by indirect means.

One type of inverse condemnation claim is a “regulatory taking.”

A regulatory taking can be based on two categories of “per se” takings — i.e., where the government requires an owner to suffer a permanent physical invasion of her property, or when the government adopts regulations that completely deprive an owner of all economically beneficial use of the property.  More often, however, a regulatory taking is based on a multi-factor test (the Penn Central factors) that examines the economic and other impacts of a regulation on the property owner.

Public agencies can also be held liable for unreasonable pre-condemnation conduct, otherwise known as “Klopping” damages.

A recently published opinion from California’s Fourth Appellate District — Dryden Oaks, LLC v. San Diego County Regional Airport Authority — provides fresh guidance on regulatory taking claims and Klopping damages.

Facts: attempted development of two lots near airport runway

In 2001, two limited liability companies controlled by Michael Durkin purchased two lots (Lots 24 and 25) directly adjacent to the end of a runway at McClellan Palomar Airport in the City of Carlsbad.  Durkin paid $474,000 for Lot 24 and $310,000 for Lot 25.  At the time of the purchases, the lots were designated as part of the airport’s Runway Protection Zone on the County’s Airport Layout Plan, a long-range planning tool that eventually became known as the Airport Land use Compatibility Plan (ALUCP).  Durkin visited the property numerous times before closing, and was aware of the lots’ proximity to the airport runway.

Lot 24 developed successfully

The development of Lot 24 went relatively smoothly.  Durkin submitted an application to the City to build a 29,000 square foot industrial building on Lot 24.  The City submitted the application to the San Diego County Airport Authority for a determination of whether the proposed building was consistent with the planning regulations that preceded the ALUCP.  The Authority responded that it could not find the proposed development to be consistent with the planning regulations, but noted that the City could allow the development through the “override” procedures in Public Utilities Code section 21676.

The City did so by resolution.  The Lot 24 project was completed and the building has been leased to various tenants since 2005.

Lot 25 hits obstacles

Durkin’s attempts to develop Lot 25, however, did not succeed.  In 2006, Durkin submitted an application to the City to build a 30,000 square foot industrial building.  Once again, the City submitted the application to the Airport Authority for review, and once again, the Authority declined to approve the project.  The City again voted to override the Authority’s determination, and approved the permit application.

But Durkin never acted on the permit before it finally expired in 2012.  In the meantime, the Airport Authority adopted the ALUCP, and the City amended its general plan to ensure its consistency with the ALUCP.

In late 2013, Durkin submitted a new application to restart the development process for Lot 25.  The City rejected the application, finding the project was no longer feasible because the ALUCP was more restrictive than the prior regulations.

Durkin took no further steps to develop Lot 25, and instead sold Lot 25 to a third party for $1.5 million.

The inverse condemnation lawsuit

Before that sale closed, Durkin (on behalf of one of his LLCs) filed a complaint against the Authority and the County (but not the City).  The complaint sought recovery for inverse condemnation and Klopping damages, alleging that the adoption of the ALUCP, which designated Lots 24 and 25 as part of a restricted Runway Protection Zone, prevented the City from approving the development in accordance with its own zoning regulations.

The trial court granted summary judgment in favor of the County and the Airport Authority, and Durkin appealed.

Court of Appeal’s Opinion

The court of appeal affirmed the trial court’s judgment.

Inverse Condemnation / Regulatory Taking

As to the claim for inverse condemnation based on regulatory taking, the court focused its analysis on the factors discussed in a prior decision from the United States Supreme Court, Penn Central Transp. Co. v. New York City.  The Penn Central factors recognized that zoning laws and regulations are the “classic example” of permissible regulations that might adversely affect recognized real property interests but generally do not require compensation.  Otherwise, government “hardly could go on” if compensation was required in every instance where a zoning change impacted real property interests.

More to the point, the court held that a prerequisite to recovering on the type of regulatory taking claim pursued by Durkin was “a final and authoritative determination” regarding the proposed development application.  The court must be able to ascertain the “nature and extent” of the permitted development before ruling on the regulatory taking claim.

Here, the court held, Durkin failed to show that the Airport Authority’s adoption of the ALUCP constituted a “final land use determination” as to the development of Lot 25.  The power to make a final determination regarding Durkin’s development application for Lot 25 rested with the City — not the Airport Authority nor the County.  The court noted that by statute and under the terms of the ALUCP, the Authority’s airport compatibility plans could be overruled by local agencies that have responsibility for ultimate zoning determinations — a process that Durkin had successfully used with his prior applications.

The court held: “In sum, we conclude the adoption of the ALUCP by the Authority was not a sufficiently final land use determination to support a takings claim.”

Klopping Damages

The court also rejected Durkin’s claim for damages for unreasonable precondemnation conduct.

Such damages are allowable, the court held, where the public entity indicates “a firm intention to acquire” property and either unreasonably delays prosecuting a condemnation claim or commences and abandons such a claim.

Here, the court held, Durkin failed to show that the Authority made any public announcement of an intention to acquire Lot 25.  The ALUCP was a broad planning document that only generally referred to the possibility of properties being acquired by eminent domain.  But the ALUCP did not direct such action, and noted that eminent domain in some circumstances would not be appropriate.

Lesson

Under the Dryden Oaks opinion, private property owners will have a very difficult time establishing a claim for a regulatory taking or Klopping damages if the claim is based on land use regulations that are not the “final say” with respect to the development of their property.

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