After inverse condemnation ruling,we’re still not quite done

The California Supreme Court's recent decision in Weiss v. People ex rel. Department of Transportation, 2020 DJDAR 7352 (July 16, 2020), settled a festering issue of eminent domain law. In Weiss, homeowners sued Caltrans and a local transportation agency for inverse condemnation, claiming that the construction of a sound wall for a highway project deflected noise, vibrations, dust and nighttime glare onto their properties, thus reducing their property values.

The issue in Weiss was the proper application of Code of Civil Procedure Section 1260.040, which authorizes a special pre-trial motion in an eminent domain action to adjudicate issues relating to valuation of condemned property. Because eminent domain (direct condemnation) and inverse condemnation are doctrinally related -- occupying opposite sides of the same coin -- courts have, at times, applied several eminent domain statutes to inverse condemnation. The Courts of Appeal were split on whether Section 1260.040 could be used to adjudicate the ultimate question of public agency liability in an inverse condemnation action.

In ruling on the agencies' motion under Section 1260.040, the trial court rejected the agencies' liability for inverse condemnation because the owners failed to show that their injury was different in type and degree from that of the broad class of property owners affected by the project. The Court of Appeal reversed, finding that a Section 1260.040 motion is not the proper vehicle to determine a public agency's liability for inverse condemnation. The Supreme Court agreed.

The court reasoned that critical differences between eminent domain and inverse condemnation mandate different procedures for the two claims. In inverse condemnation, the private property owner sues a public agency claiming that construction or operation of a public improvement damaged the property, tantamount to an eminent domain taking. The principle difference between the two causes of action, aside from which party is the plaintiff, lies in the determination of the agency's liability for the taking. In eminent domain, the agency concedes liability at the time it files the action; the only issue for trial is the amount of compensation. In inverse condemnation, in contrast, whether the agency is liable at all is the primary issue in dispute.

For both eminent domain and inverse condemnation, the owner's damage is the diminution in the market value of the property taken. In eminent domain, evidence of value is submitted by appraisers. The appraiser's job is to predict the sale price of the owner's property assuming that the public project and the condemnation do not exist, and the property is sold on the open market. Answering this hypothetical question is trickier than opining on past events in the typical civil action. Accordingly, the admissibility of evidence of value in an eminent domain action is subject to special rules. For example, an appraiser may not consider any market decline caused by the very project for which the property is being acquired. Given the requirements of these special rules of evidence, the admissibility of an appraisal can be uncertain.

Under the unique procedural rules for eminent domain actions, the parties do not learn whether an appraisal is admissible until the trial court rules on a motion in limine to exclude all or part of the appraisal brought at the outset of trial. This uncertainty as to the admissibility of each sides' evidence hinders settlement of eminent domain actions. Moreover, trial judges are reluctant to exclude an appraisal on the eve of trial, leaving a party with no evidence on the sole issue in controversy. The existing procedure to resolve issues prior to trial -- a motion for summary adjudication -- is limited to adjudication of an entire cause of action or affirmative defense and cannot be used to decide the admissibility of evidence.

To address this dilemma, in 2001 the Legislature added Section 1260.040 to the Eminent Domain Law, allowing the court to rule on the admissibility of appraisal evidence before the appraisal is finished. In Weiss, the Supreme Court concluded that the Legislature expected Section 1260.040 to promote early settlement of eminent domain actions by providing clear direction to appraisers about appropriate methodologies, data and assumptions. Reining in creative approaches to valuation that stretch or violate the special evidentiary rules narrows the gap between appraisals and promotes pre-trial settlements. The court held, however, that the statute was not meant to substitute for summary judgment motions or trial to determine liability in ordinary civil actions, including inverse condemnation actions.

Although property owners have invoked Section 1260.040 in inverse condemnation actions (e.g., unsuccessfully in the leaning Millennium Tower inverse condemnation case in San Francisco), use of Section 1260.040 motions by defendants appears to be more prevalent, as illustrated by the fact that the agency was the moving party in both Court of Appeal cases addressing the appropriate use of Section 1240.040. Weiss, therefore, likely hands greater leverage to property owners in inverse condemnation cases. Defeating an agency's motion for summary judgment, where the owner need only show a triable issue of material fact, is easier and less costly than prevailing against a Section 1260.040 motion, where owners must demonstrate that the preponderance of the evidence weighs in their favor. Moreover, the agency's cost for a motion for summary judgment, with its requirement for a separate statement of undisputed material facts, is greater than filing a Section 1260.040 motion.

The difficulty with Section 1260.040 that Weiss did not resolve is its requirement that the motion be heard by the judge assigned to try the case at least 60 days before trial. Trial lawyers reading this requirement will immediately see the Catch-22: California superior courts typically do not assign trial judges until the day of trial, making it all but impossible to bring a Section 1260.040 motion unless it is one of the rare cases that have been assigned to a single judge for all purposes. Accordingly, the next task is for the Legislature to amend Section 1260.040 to require the trial court to assign the trial judge at the time a Section 1260.040 motion is filed, or for the Judicial Council to adopt a Rule of Court to the same effect, or both.

While a final resolution of this issue is long overdue and the court's recent decision brings needed clarity to condemnation law, the work of the Legislature, the Judicial Council and the Supreme Court is incomplete. The task ahead is to allow Section 1260.040 to fulfill its promise of encouraging early and often pre-trial settlement of eminent domain actions. For that to happen, critical changes need to be made to the statute, the Rules of Court or both for Section 1260.040 to work as intended. 