Eminent Domain Report

When the government promises to do one thing and then does another, it usually has myriad excuses.  Sometimes it claims that its staff (the people with whom the opposing side are typically interacting) cannot bind the agency.  Other times, it claims that it cannot contractually agree to things that take away key government functions (e.g., the government cannot contract away its right to condemn property).  But every once in a while, the government gets stuck, even in the absence of a formal written agreement.

In HPT IHG-2 Properties Trust v. City of Anaheim (November 20, 2015), the Court of Appeal upheld a trial court ruling that the City was estopped from, in effect, going back on a promise to build a parking structure.  The facts are long and convoluted, but essentially boil down to this:  The property's owner wanted to build a hotel complex on its property, but the City knew that it would need part of the property for an overpass project in the future.  In the end, the City approved the Owner's plans for its hotel project but, in doing so, the parties also agreed about how the future overpass project would be handled.  In particular, the City agreed that it would pay the Owner for the property it needed for the overpass, and that it would acquire and build a parking structure for the Owner on a adjacent property to replace the parking that would be lost due to the overpass.  In exchange, the Owner designed its project so that it could accommodate the future overpass by, among other things, reducing the project's overall size.

In implementing this, the Owner and the City agreed to two sets of project "plans" for the hotel project:  (1) an "interim" design that the Owner would build; and (2) a "final" design that incorporated the City's overpass.  The Owner proceeded to build its hotel project and, years later, the City was ready to build its overpass project.  Everything went well until the City announced that instead of building the parking structure, it would build only a surface lot on the replacement property.  In order to achieve the required number of spaces, the City would disregard its own "Resort Specific Plan Area" landscaping and setback requirements.

Having built its entire project under the restrictive "Resort Specific Plan Area" rules, the Owner was not enthused about its new parking lot.  It wanted the City to comply with its own standards and build the structure that was originally contemplated so that the new parking lot matched the overall project, with extensive setbacks and elaborate landscaping for the new parking lot.

The unpublished opinion is long and fairly complicated, but the bottom line is that the Court agreed with the Owner that the City could not go back on its agreement to build the parking structure.  The Owner had relied on that promise in building its $40 million hotel complex, and it was entitled to have its parking match the project's overall design even after the City built its overpass.

There's probably a lot more to this story, but rather than dig into the minutiae, I wanted to offer a comment only tangential to the actual opinion.  While this situation obviously went sideways when the City tried to avoid spending the money on a costly parking structure, the overall concept here reflects good public policy.  Often, an owner's planned development will conflict with a planned public project, and where the private development is going to take place before (maybe even many years before) the public project, many bad things can happen.

Sometimes, agencies try to delay or even prevent an owner's development, knowing that the damages associated with taking all or part of the developed property down the road could be massive.  But the courts have (correctly) prevented such tactics, ruling that this can result in a de facto taking of the property.  Other times, the owner rushes ahead with its own project without regard for the future public project, knowing that it can seek damages when the taking occurs.

Here, by contrast, the parties actually worked together, seeking a solution to the Owner's desire to build a hotel complex on the property, a part of which the City would need for its future overpass.  They designed the project in both an "interim" and "final" configuration, working together to ensure that the Owner's project fit within the City's future plans.  This allowed the Owner to proceed with its construction on its schedule, while still providing the means to construct the overpass in the future -- without hugely impacting the Owner's project.

While the plan did not work out exactly as the parties anticipated in this case, I still like the effort to work together, and think that owners and agencies can learn from this example.  My advice:  make sure both parties are very clear on how the "interim" and "final" conditions will work, along with who will pay for what along the way.  In addition, it's important to consider the possibility that the future public project will never get built, and include provisions for dealing with that potential outcome.