Eminent Domain Report

For those of you who have followed Nossaman's blog since the very early days, you'll recall our coverage of a significant regulatory takings case, Monks v. City of Rancho Palos Verdes.  The 2008 California decision received much press coverage in that it was one of the very few instances where property owners overcame the myriad substantive and procedural obstacles and succeeded under a regulatory takings theory.  While the Court found a taking occurred, the case was remanded back to the trial court to determine the appropriate remedy.  Now, nearly five years later, the dispute has now made its way up to the Court of Appeal for the third time, with the Court holding the property owners cannot recover damages for a permanent taking because the City has permitted the owners to develop their property.  

For those unfamiliar with the Monks case, you can find a more detailed background of the dispute and its prior holdings in an article we wrote for the California Real Estate Journal.  Generally, the case involved an inverse condemnation action filed by a number of property owners against the City of Rancho Palos Verdes, alleging that the City had exacted a regulatory taking by enacting a resolution that precluded the owners from building homes on their vacant lots.  Here's what transpired:

• In 2005, the Court held that the owners were entitled to a trial on their takings claim and were not limited to seeking a writ of administrative mandate to overturn the City's resolution.  The parties settled the owners' temporary takings claim for $4.25 million, leaving only the permanent takings claim for trial.  The trial court found that the City's resolution did not constitute a permanent regulatory taking.
• In 2008, the Court of Appeal reversed, concluding that the City's resolution effected a permanent regulatory taking.  The case was remanded so the trial court could determine an appropriate remedy.
• After the 2008 decision, the City allowed the owners to build homes on their lots.  However, the owners also sought compensation for the decline in the fair market value of their properties. The trial court found that no such compensation was allowed because the City had remedied the permanent taking by repealing the offending resolution and enacting a new resolution allowing the owners to develop their properties.  Once again displeased with the trial court's decision, the owners appealed.  (You can't blame them, as they were successful with the two previous appeals.)  

Ah, finally, we're now up to speed.  So what did the Court of Appeal do this time?  You can find the decision here, wherein the Court held that the City did not have to pay compensation to the owners for a permanent taking because it provided a constitutionally acceptable alternative remedy:  it allowed the owners to build homes on their lots.  The Court explained that in the case of a permanent regulatory taking, the public entity has the option of compensating the property owner or repealing the offending regulation.  Here, the City allowed the owners to develop their properties, and the owners therefore could not be compensated for a permanent taking.

The owners attempted to argue that they were entitled to compensation for the decline in market value of their properties under a theory of Klopping -- or precondemnation -- damages.  (See Klopping v. City of Whittier (1972) 8 Cal.3d 39.)  Such damages are awarded where a public entity makes precondemnation statements and thereafter acts unreasonably in acquiring or attempting to acquire property through eminent domain.  The Court disposed of this theory of liability, holding that it simply did not apply to a regulatory takings situation.

At long last, the Monks case may finally reach its conclusion.  While the owners will walk away with a bitter taste in their mouths having lost the last battle, they ultimately did win the war.  They recovered damages for a temporary taking and they were ultimately permitted to build their homes.