Court creates bad precedent by injecting tort principles into an inverse condemnation analysis

The California utility industry, in the wake of the recent spate of devastating wildfires exposing them to billions of dollars of liability, has launched a two-front attack on inverse condemnation. The utilities successfully beseeched the legislature to enact Assembly Bill 1054, establishing a wildfire fund which opponents characterize as a PG&E bailout.

The California Supreme Court, in City of Oroville v. Superior Court, 2019 DJDAR 7729, has now weighed in -- radically changing the venerable inverse condemnation strict liability standard by imprudently employing a tort analysis.

The underlying loss arose from a backup in the city of Oroville's sewer main, causing damage to the WGS Dental Complex -- a building owned by three dentists. The dentists filed property damage claims with their insurer, The Dentists Insurance Company , and sued the city for uncovered losses. The insurance company intervened in the lawsuit, which contained an inverse condemnation cause of action alleging the city was responsible for the sewage backup and resulting damages. The city cross-complained against WGS, alleging that the absence of a backwater valve on the private sewer line constituted a violation of the Oroville Municipal Code.

Oroville filed a summary judgment motion based on the failure of WGS to install the backwater valve. The trial court denied that motion, stating it was for the trier of fact to determine whether prevention of the blockage in the main, or absence of the backflow prevention device, caused the subject loss.

WGS then filed a motion under Code of Civil Procedure Section 1260.040, seeking a judicial determination of the city's liability under inverse condemnation. That statute, under review by the Supreme Court in Weiss v People ex rel. Dept. of Transportation, 20 Cal. App. 5th 1156 (2018), provides a summary procedure pursuant to which the trial court may weigh the evidence in determining the liability issue in eminent domain/inverse condemnation cases. The trial court granted that motion, determining that the primary cause of the sewer blockage and resulting backup most likely was root intrusion. The trial court acknowledged that the absence of a backwater valve was a "significant secondary cause of the damage." Relying primarily on California State Automobile Assn. v City of Palo Alto, 138 Cal. App. 4th 474 (2006), the trial court held it was required to impose inverse condemnation liability, as root blockage was one of the causes of the damage.

The city petitioned the Court of Appeal for a writ of mandate, arguing that the deliberate design and construction of the sewer system was not the cause of the damages; the failure of WGS to install a required backwater valve defeated the deliberate design and construction of the sewer system; and the city acted reasonably in operating and maintaining the sewer system.

The Court of Appeal denied the writ, relying on the City of Palo Alto language that the city was required to prove that other forces alone caused the damage. The appellate court emphasized that the failure to install a backup valve did not cause the blockage in the city's sewer main and the city's attempt to escape liability based on the absence of that valve smacked of a "sort of contributory negligence theory from tort law" which was no longer even applicable in tort law.

The Supreme Court granted review and commenced its analysis by providing an overview of inverse condemnation law. The court acknowledged that inverse condemnation's roots lie in constitutional, rather than common law, terrain. It quickly pivoted to the competing concerns-distributing the losses to the community from the public improvement versus impeding beneficial public improvements due to greatly increased costs. The Supreme Court noted how those competing concerns were at the heart of the present case: WGS contending that inverse condemnation liability should be imposed on the city spreading its costs to the community at large and the city arguing that the damages were caused by WGS' failure to install the required backwater valve.

The court reiterated the traditional "substantial causation" standard and acknowledged that inverse condemnation may apply in cases of concurrent causation, "provided the causal nexus between the risks inherent in the public improvement and the harm in question was sufficiently robust to create a pronounced likelihood of damage." The Supreme Court held that damage to private property must be substantially caused by an inherent risk presented by the deliberate design, construction, or maintenance of the public improvement. It continued its analysis by emphasizing that the damage must be the necessary or probable result of the improvement or if the immediate, direct and necessary effect thereof was to produce damage. Citing to Van Alstyne's landmark law review article, the court stated that, even in the case of multiple concurrent causes, the injury to private property must be an "inescapable or unavoidable consequence" of the public improvement as planned and constructed. See Van Alstyne, "Inverse Condemnation: Unintended Physical Damage," 20 Hastings L.J. 431 (1969).

The court then abruptly takes a U-turn in its analysis, referencing tort law which permits courts to consider a plaintiff's act or omission in the chain of causation. Plugging this tort analysis into the inverse condemnation equation, the court states that WGS must demonstrate that the inherent risks posed by the sewer system as deliberately designed, constructed or maintained, were a substantial cause of its property damage. The court rejected WGS' argument under the Belair and City of Palo Alto cases: that inverse should apply as the sewer system failed to function as intended due to the blockage, as the sewer is designed to carry wastewater away from its building.

The Supreme Court declined to adopt that reasoning, as it "would overlook a crucial aspect of the inverse condemnation inquiry." Instead, the court opted to require an assessment of whether the damages resulted from a risk not created by the public improvement but by the acts of the private property owner. The court disapproved of the City of Palo Alto holding, concluding that a causal connection between the public improvement and property damage alone is insufficient for inverse condemnation liability. The Supreme Court stressed that WGS failed to demonstrate that the damage to its property was caused by an inherent risk of the city's sewer system as deliberately, designed, constructed or maintained. The city, in the court's opinion, acted reasonably in designing the sewer system and had the backwater valve been installed, the loss could have been averted.

The City of Oroville decision, by injecting tort principles into an inverse condemnation analysis, presents a substantial departure from settled inverse condemnation law. The opinion pays lip service to, but conveniently ignores, the constitutional principles upon which inverse condemnation liability is based. This decision is bad precedent and a slippery slope to eviscerating inverse condemnation as a "no fault" basis for imposing liability on utilities and governmental entities. 