Eminent Domain Report

Although best known today as the voice of bumbling Mayor West on Comedy Central’s Family Guy, Adam West’s real claim to fame was playing the caped crusader in the 1960s television series Batman.  Batman and the Boy Wonder regularly matched wits with the Riddler, a villain who would deliver clues to his elaborate criminal plans by deceptively simple riddles.  A recent unpublished decision, City of Southgate v. Jauregui (Court of Appeals of California, 2nd District, Division 4, No. B228334) both poses and solves a deceptively simple riddle, worthy of the Riddler himself. 

Riddle me this: When is a property owner not an owner for purposes of receiving a condemnation award?

In City of Southgate Salvador and Norma Jauregui owned a property that was condemned by the City of Southgate for a street improvement project.  The Jaureguis were the fee owners as of the effective date of the order for prejudgment possession.  After the City took possession and began construction of the project, Golden Security Bank, the holder of a first deed of trust, foreclosed and took title in its own name.  The Jaureguis and the Bank then each claimed the right to receive the just compensation awarded for the taking of the property by the city.

The Jaureguis had a compelling argument. After all, under California law, when a condemning agency obtains an order of immediate possession and then takes possession of the subject proerty, the taking is deemed to occurred at that time.  (Redevelopment Agency v. Gilmore (1985) 38 Cal.3d 790, 800)  Accordingly, the party who owned the property at that time is entitled to the condemnation award.  In Re Rossi (Bankr. 9th Cir (1988) 86 B.R. 220, 224) the foregoing authority notwithstanding, both the trial court and court of appeal concluded that the Bank, not the Jaureguis, was entitled to receive the condemnation award.

The Jaureguis position was undermined by the small matter of a bankruptcy filing by Norma Jauregui. She filed for bankruptcy before the effective date of the order for prejudgment possession.  As a result, control of the condemned property was transferred to the trustee of the bankruptcy estate.  He concluded that, because the outstanding loan obligations exceeded the value of the property, the automatic stay should be lifted and the Bank allowed to proceed with the foreclosure sale.  The Bank then entered into a compromise agreement with the City whereby the Bank agreed to make a full credit bid of $1.53 million to purchase the property at the foreclosure sale, and then transfer the property to the City for $1.53 million.  Salvador Jauregui objected to the compromise agreement in the bankruptcy court, but his objections were rejected.  The bankruptcy court lifted the automatic stay allowing the Bank to foreclose on the property and convey it to the City at the agreed price. 

While the Jaureguis technically retained fee title as of the effective date of the order for prejudgment possession, the property itself  had become an asset of the bankruptcy estate.  Having failed to convince the bankruptcy court that allowing the bank to foreclose and then convey the property to the City for a stipulated amount, the Jaureguis could not get a second bite at the apple by making the same argument in the state court eminent domain action.

Holy res judicata Batman!