Eminent Domain Report

We don’t often see multiple takings-related cases in one week, but last week we saw three.  The California Supreme Court’s decision in Property Reserve was obviously the most important, but the Fourth Appellate District Court of Appeal in San Diego also issued two decisions in the same week.  Although both of these opinions are unpublished and cannot be cited, they act as a reminder for property owners to be mindful of some basic principles of eminent domain law.

The first case, SANDAG v. Vanta, addresses some of the limits on the principle of just compensation and, in particular, the proper determination of damages to the owner’s remaining property (severance damages.)  The agency sought to acquire about one-fifth of the owner's property, including all of the area available for legal access to the abutting street.  The agency also offered to provide a replacement easement over adjoining property to provide access to the owner's property.  Vanta claimed that when he decided to develop the access, it would be more expensive to develop access on the replacement easement than on the area taken by the agency.  His  expert  added this increased cost to cure a part of the property's  severance damages, which already included the diminution in value of the remaining property. Before trial the agency moved to exclude evidence of the alleged cost to develop access, arguing that the owner was not entitled to both the diminution in value and the costs to cure.  The trial court agreed and excluded the evidence.  The Court of Appeal affirmed, noting that the owner did not have any evidence that it had plans to develop the access area in the before condition which meant any increased costs were purely  speculative.  The Court also analyzed the propriety of claiming both diminution in value and cost to cure:

In short the cost to cure is a proper measure of severance damages ‘only when it is not greater than the decrease in the market value of the property if left as it stood.’…Vanta was not entitled to recover both the diminution in value of the remaining property and the cost of ‘curing’ his loss of direct access…by developing access [] over the replacement easement; he was entitled to recover one or the other, whichever was less.

The Vanta opinion reminds us that not every possible damage is compensable in an eminent domain action.  Future harm (such as increased costs of development) must be more than a remote possibility.

The same Court of Appeal also issued another opinion in SDMU LLP v. County of San Diego.  This inverse condemnation case involved a development project that had initially been approved in 1990.  The project then went through a series of stops and starts, with issues arising regarding the completion of off-site improvements and related payments.  During that time, the developer and the County had entered various agreements.  One agreement obligated the developer to make payments as homes in the Lakeview portion of the project were completed.  When the contractor stopped work on the improvements, the County began withholding building permits for the Mountaintop portion of the development.  Apparently, the Lakeview and Mountaintop portions were being managed by their respective entities, who were both related to the developer.  The Lakeview and Mountaintop companies brought inverse condemnation actions against the County, challenging the payments for off-site improvements and the withholding of building permits.

The trial court dismissed both of the actions on a threshold consideration.  To state a claim for inverse condemnation, a plaintiff must show that it lost property and/or money.  Here, the payments for the offsite improvements were the developer’s obligation, not the obligation of the Lakeview company.  So if anyone had a right to challenge the payments made to the County, it was the developer, not Lakeview.  Similarly, The Mountaintop company claimed that it should not have its building permits conditioned on completion of the offsite improvements.  The Court found that the conditions did not require Mountaintop to convey any property (i.e., a dedication) or pay any money to the County (i.e., an exaction) and therefore Mountaintop had not lost any compensable property right.  As with Lakeview, had the developer challenged the obligation to construct the improvements, it could have potentially stated a claim.

The Mountaintop discussion is more interesting to me.  On these facts, the opinion makes sense.  The entities are related and it is all the same project.  The developer should not be able to get around its obligations by having a related entity seek the actual permits.  But looked at more broadly, the Court’s reasoning suggests that an agency can place any number of conditions on permits and approvals as long as the applicant is not required to actually pay any money or convey property (but someone else must).  In any event, the decision should make property owners think carefully over who is the proper party to bring a challenge to a regulation.  It may not always be the one you think.