Eminent Domain Report

I read a really interesting blog post by Robert Thomas, 10th Cir: Landowner Not "Prevailing Party" Even Though They "Won $3.8 Million -- Much More Than The Government Ever Offered Them".  It describes a recent 10th Circuit decision that denied the property owner an attorneys' fees award where (1) the property was valued at trial at $3.8 million and (2) the government's offer was a mere $186,500.  What caught my attention was the mechanism by which the federal courts award fees under the Equal Access to Justice Act (EAJA), as compared to the fee-shifting rules in California. 

Under the EAJA, the owner is declared the "prevailing party" entitled to a fee award only where the final result is closer to the highest valuation opinion the owner presented at trial than it is to the highest valuation opinion the government presented at trial.  Thus, where the owner originally argued for a value of more than $30 million, the $3.8 million final award was far closer to the government's $186,500 number, meaning the owner received no fee award.  Simple math. 

How would this case have played out in California?  The result in California is a bit tricky to predict.  The value to which the owner's appraiser opined at trial has no bearing on whether the owner can recover fees.  Rather, fee awards in California depend on a comparison of the government's "final offer of compensation" against the owner's "final demand for compensation," exchanged shortly before trial. 

Using those figures, California courts must determine whether, in light of the adjudicated value, the government's final offer was unreasonable, while the owner's final demand was reasonable.  If the government was unreasonable and the owner was reasonable, the owner is entitled to fees.  Otherwise, no fee shifting occurs.  In making this determination, courts look at three factors:

1. The amount of difference between the demand/offer and the compensation awarded;
2. The percentage of difference between the demand/offer and the award; and
3. The good faith, care and accuracy with which the demand/offer was calculated.

Looking at the facts of the 10th Circuit case, if the owner's final demand had been $30 million or more, it's pretty clear that a California court would not have awarded fees.  Indeed, the court likely would have viewed both the government's offer and the owner's demand as unreasonable.

In the actual case, the owner requested that the court adopt a $6.1 million valuation figure (a value established by an independent panel of appraisers appointed by the court to render an opinion of value).  If we view that as representing a hypothetical "final demand," does the result change? 

Hard to say.  Assuming we treat the $186,500 as the government's final offer, the final value of $3.8 million would lie somewhere in the middle:  $3.2 million above the government's offer and $2.3 million below the owner's demand.  On the numbers, I think it would be easy to conclude that the government's "offer" qualified as unreasonable; the value awarded was more than 20 times the "offer" amount. 

But would a demand $2.3 million above the adjudicated value qualify as "reasonable"?  To me, this is a close call, and the outcome would likely depend on the court's overall view of the parties' conduct.  The "demand" was pretty far off, both in terms of percentages and in terms of raw numbers.  The demand missed by more than $2 million and the was more than 50% higher than the final value. 

Most reported opinions on this subject focus on the government's reasonableness.  And while no bright line mathematical rule exists, in most cases, offers of less than 60% of the award are deemed unreasonable, offers of more than 85% of the award are deemed reasonable, and offers falling within 60-85% can go either way.   (A 1995 opinion, People v. Yuki, first established these guidelines.)

Applying this same construct to the demand, this might mean that for a $6.1 million demand, final awards of less than $3.7 million (60% of the demand) mean the demand qualifies as unreasonable, awards of more than $5.2 million (85% of the demand) mean the demand qualifies as reasonable, while awards between $3.7 and $5.2 would depend on other factors.  (Disclaimer:  I'm not aware of any reported opinion that actually applies the 60% / 85% thresholds in this manner to evaluate final demands.)

Were this the rule, the $6.1 million demand would fall, just barely, in the gray area in light of the $3.8 million award.  And were this what actually happened, my gut says that the court would probably find that the demand qualified as reasonable in light of how woefully inadequate the government's offer was.  But I could easily see a court ruling either way on this one.

So which approach is better?  I have to admit I'm intrigued by the federal approach, which prevents either side from presenting an exaggerated number at trial.  This would presumably make the fact-finder's role easier and would make it less likely that a wildly high - or low - result would occur.  But in the end, I think California has it right.  The goal is to prompt settlements, and using the settlement figures as the measuring sticks for determining fee awards makes the most sense, at least to me.