THE “ABCs” OF EMINENT DOMAIN AND INVERSE CONDEMNATION Sima R. Salek, Esq. Jeffrey F. Kagan, Esq. Orbach, Huff & Suarez LLP

THE ABCs – An Overview Eminent Domain – Direct Condemnation Public Entity Seeks To Acquire Property Inverse Condemnation Property Owner Claims Public Entity Took or Damaged Property

CONSTITUTIONAL BASIS United States Constitution: “. . . Nor shall private property be taken for public use, without just compensation.” California Constitution: “Private Property may be taken or damaged for public use only when just compensation. . . has first been paid to, or into court for, the owner.”

Eminent Domain Pre-Condemnation Procedures Walkthrough with Appraiser and Owner Appraise Property Obtain Approval to Make Offer in Closed Session Make Offer No less than appraised value Good Faith Negotiations Acquire Property Voluntarily OR Proceed to Resolution of Necessity

Resolution of Necessity An administrative determination that the statutory prerequisites for taking have been met. A Resolution of Necessity must contain: 1. A general statement of the public use for which the property is being taken and reference to the statute authorizing eminent domain; 2. A description of the general location and extent of the property being taken; and

Resolution of Necessity Cont. A declaration that the governing board of the public entity has found and determined each of the following: The public interest and necessity require the proposed project; The proposed project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury; The property described in the Resolution of Necessity is necessary for the proposed project; and That the public entity made the statutory offer to the property owner or did not make the offer because “the owner cannot be located with reasonable diligence”.

Resolution of Necessity Cont. Must give notice and opportunity to be heard to all owners on last tax assessor roll. Failure by an owner to file a written request to appear and be heard within 15 days after notice mailed results in waiver. 2/3 vote of governing body

Conclusive Effect of Resolution Resolution of Necessity conclusively establishes: The public interest and necessity require the project; The project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury; The property sought to be acquired is necessary for the project. Resolution of Necessity does not have conclusive effect if “gross abuse of discretion” by governing body.

Filing Action/Pleadings Complaint Names of Plaintiff and Defendants Description of Property, Map or Diagram Allegations of Public Use, Necessity, Adoption of Resolution of Necessity, Statutory Authority for Eminent Domain Answer Nature and Extent of Property Interest Challenge to Right to Take

Challenges to Right to Take In Answer or Demurrer Grounds: Plaintiff not authorized to exercise power of eminent domain Stated purpose is not a public use Plaintiff does not intend to devote the property to the stated purpose Property not subject to eminent domain for stated purpose No reasonable probability of use in 7 years

Deposit of Probable Compensation Before Deposit, Expert Prepares Summary of Basis for Appraisal Deposit Fair Market Value in Court Serve Notice of Deposit Interest Holders May Apply to Withdraw Money

Possession Prior to Judgment Prejudgment or Immediate Order for Possession/“IOP” Must Have Made Deposit Public Entity Can Obtain Possession: 3 Days if Not Occupied 90 Days if Occupied Risk of Loss Transfers to Public Entity

Experts/Discovery Hire Appraiser Can Conduct Discovery Owner can also testify Can Conduct Discovery

Pre-Trial Matters Statutory Exchange of Appraisal Data Final Offer 90 Days Before Trial or Date Agreed to by Parties Final Offer 20 Days Before Trial Note: Failure by Public Entity to make reasonable offer, when Owner made reasonable offer, subjects Public Entity to litigation expenses (attorneys fees, expert fees and costs)

Trial Prima Facie – Public Entity Burden of Proof to Establish Public Use and Necessity Valuation – Compensation No Burden of Proof By Jury Apportionment

The ABCs of Inverse Condemnation When Person or Entity with Property Interest Claims that a Public Entity Took or Damaged Its Interest Without Payment of Just Compensation The Public Entity Is Not Actively Seeking to Acquire Property Philosophical Underpinning: Disproportionate Contribution to a Public Undertaking Often Not Obvious Taking Fact-Specific and Fact-Intensive

Elements of Inverse Condemnation Cause of Action Plaintiff has initial burden to establish each: Interest in Real Property Public Project Causation Damage or Taking Before a jury can even consider the amount of “just compensation”, if any, to be awarded.

Interest In Property Property Owner Tenant Trustee Executor Mortgagor/Lien Holder Holder of an unexercised option to purchase Insurer of merchant as its subrogee Another public entity

“Public Project” Public entity planned, approved, constructed or operated a public project. Public entity “substantially participates” in some activity for the public use or benefit. Note: Mere approval of plans/issuance of permits is not, in and of itself, sufficient “substantial participation” to create inverse condemnation exposure.

Causation Strict liability Any actual physical injury to real property proximately caused by the improvement as deliberately designed and constructed, irrespective of foreseeability. Exceptions: 1. Exercise of Police Power 2. Where “state” had the right to inflict damage at common law.

Causation When Intervening Force: “Substantial Factor” Test Whether governmental action, acting alone, could have produced the damage.

Damage or Taking Fact-based specific inquiry

Types of Inverse Condemnation Physical Intrusion Intangible Intrusion Not Causing Physical Damage (noise, dust, fumes) Intangible Intrusion Causing Physical Damage (vibration, land stability) Loss of Access “Klopping” Precondemnation Delay Regulatory Takings

Physical Intrusion Water damage - Streams - Flood control - Riparian rights Land Stability - Subsidence - Lateral/subjacent support

Physical Intrusions Loss/Interference with Access Good Faith Mitigation

Intangible Intrusion – No Physical Damage Overflying aircraft Highway, airport noise Public works construction projects Utilities No liability for electromagnetic fields.

Intangible Intrusion – Causing Damage Vibrations Land Stability / Subsidence

Loss of Access Complete deprivation is actionable No right to expect that access will be maintained indefinitely Public policy favors public improvements, especially to traffic As long as property remains accessible, there is no inverse condemnation liability Unreasonable construction activity is actionable Vehicles and equipment time

“Klopping” Unreasonable precondemnation delay or other activity Don’t announce intent to condemn before you mean it! Also statutory basis: If Public Entity does not initiate eminent domain action within 6 months of Adoption of Resolution of Necessity (Code of Civil Procedure Section 1245.260)

Regulatory Takings The “facial” or “as applied” challenge to a land use restriction or ordinance. Per Se Taking: Ordinance takes or denies all economically viable uses of property. Lucas v. South Carolina Coastal Council (1992) 505 US 1003. Partial Taking: Ad hoc analysis of factors. Penn Central Transp. Co. v. New York City (1978) 438 US 104.

Key Penn Central Factors The economic impact of the regulation of the claimant. The impact of the regulation on the investment-backed expectations. The character of the governmental action.

Common Regulatory Takings Contexts Zoning Down zoning v. open space overlays Development Moratoria Generally, not a taking 30 years temporary moratorium is not a taking Weigh state interest v. burden on owner

Common Regulatory Takings Contexts Permits If total denial (=denial of all economically viable use) must compensate owner unless denial was for public safety (police power) or unless delay in issuing permit was normal in the permissible regulation of development. Mere delay in issuing permit is generally not a taking.

VALUATION ISSUES Fair Market Value (Code of Civil Procedure Section 1263.320): “. . . The highest prices on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all of the uses and purposes for which the property is reasonably adaptable and available.” Same Standard In Inverse Condemnation Except in Unusual Circumstances

Valuation of Special Use Property Fair Market Value for Special Use Property (Code of Civil Procedure Section 1263.320): “The fair market value of property taken for which there is no relevant, comparable market is its value on the date of valuation as determined by any method of valuation that is just and equitable.”

Mitigation Good faith mitigation measures are compensable in inverse condemnation.

Date of Value Eminent Domain: Inverse Condemnation: Date of Commencement of Action if brought to trial within 1 year Date of Trial if after 1 year Date of Prejudgment Deposit Inverse Condemnation: Date of Taking v. Date of Trial

Date of Value – Current Hot Issue in Eminent Domain Case Law Saratoga Fire Protection District v. Hackett (2002) 97 Cal.App.4th 895 Mt. San Jacinto Community College District v. Superior Court (2005) 126 Cal.App.4th 619 San Diego Metropolitan Development Board v. RV Communities (2005) 127 Cal.App.4th 1201 New Case: City of Santa Clarita v. NTS Tech Sys. (2006) 2006 WL 255080

Additional Considerations in Inverse Condemnation Statute of Limitations Three Year Statute of Limitations: Code of Civil Procedure Section 338(j): “An action to recover for physical damage to private property under Section 19 of Article I of the California Constitution” Note: Five Year Statute of Limitations for Adverse Possession Date of Accrual Constructive or Actual Knowledge “Continuing Takings”

Additional Considerations - General Furniture, Fixtures and Equipment Fixtures Are Actionable In Inverse Condemnation Relocation Benefits Loss of Goodwill