Lawsuit may test how receptive US courts are to takings cases

A shopping center operator has sued the city of Palm Springs, saying its partial closure of a major boulevard to allow outdoor dining amounts to unlawful regulatory taking.

Kramer Vineyard Properties LLC filed its eminent domain challenge Oct. 1 in the Central District of California, alleging violations of its equal protection and due process rights. The plaintiff also alleged a violation of the Fifth Amendment, saying the city did not provide just compensation.

Last month the city allowed sections of Palm Canyon Drive between Tahquitz Canyon Way and Baristo Road to be closed effective Sept. 3, the lawsuit said. Kramer Vineyard said it owns The Vineyard shopping center at the 200 block of South Palm Canyon Drive, where retailers include a frozen yogurt shop, a clothing store, a shoe store and a steakhouse.

"The regulatory actions taken by the defendants have resulted in plaintiffs being deprived of all economically beneficial or productive use of their property including, without limitation, their licenses, their leased and owned property and further threatens the involuntary closing of their business and loss of their property," the lawsuit stated.

The city's plan does not provide alternative access for other retailers along the closed section of Palm Canyon Drive, the plaintiff said. Now, The Vineyard said, it faces the threat of losing tenants, revenue, and inability to pay its mortgage. Kramer Vineyard Properties LLC v. City of Palm Springs, 5:20CV02050 (C.D. Cal., filed Oct. 1, 2020).

Kramer Vineyard's lawyers, Robert W. Thompson and Charles Russell of Callahan Thompson Sherman Caudill LLP, said they are hoping to set a trend of more favorable rulings toward property owners in takings cases in light of a U.S. Supreme Court decision last year. In Knick v. Township of Scott, Pennsylvania (2019) the justices held 5-4 that federal courts must take cases pursued by victims of government takings, striking the precedent to leave them in state court that was set in the 1985 decision in Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City.

"We agree it's an uphill battle in state court but given the recent opinions, we have a better chance in federal courts," Russell said in a phone interview. "Everyone knows Highway 111 Palm Canyon Drive is not a side street. It's nothing like downtown Los Angeles where there are six other routes to get to your destination."

Palm Canyon Drive is a major artery of the retail corridor that runs through the Coachella Valley, Russell pointed out, "and when you shut that down, you favor very few select businesses to the extraordinary detriment of all other restaurants. That's the unique situation in this case."

"This isn't the same thing in state court, where a left-turn lane is closed and a business is complaining about annoyances. These small mom-and-pop businesses are struggling to survive," Russell said. "When this kind of order comes in that favors large businesses with street-fronting property, you are taking away the last thing keeping them alive."

Some plaintiff and defense experts specializing in eminent domain said it will be more difficult for the courts to let the challenge stand strictly from precedent, given long-existing case law allowing government entities to do street work, repairs and modernize roadways.

"At the end of the day, there are so many case laws that allow governments within police powers to make changes to public streets," said Bradford B. Kuhn, a partner at Nossaman LLP who represents property owners, businesses, public entities and utilities as both plaintiff and defense.

Courts have also held that not every governmental interference with right of access constitutes a taking entitling the property owner to compensation, Kuhn added.

Although he agreed the case might not stand, property rights attorney Craig Collins, a partner at Blum Collins Ho LLP, said federal courts could have a different view on takings violations than state courts, in light of Knick.

"I'll give the benefit of the doubt to the plaintiffs, because nobody knows yet what the federal courts will think because they haven't been hearing these types of cases until last summer," Collins said. "There is a lot of scholarly work in the takings realm that argues everything a government does that hurts property value should amount to a taking, but courts typically never exercised a broad view of it."

The Palms Springs case has been assigned to U.S. District Judge Mark C. Scarsi, who was confirmed by the Senate last month. He could employ a much more expansive and favorable view for property owners, Collins said. It could be a trend on the horizon as more Federalist Society-affiliated appointees make it to benches in California, he said.

"Property owners have been knocking on the doors of courts trying to get them to hear these cases for a long time and have been turned away empty handed," Collins said. "But now that the federal courts have to hear them, plaintiffs here are probably wondering if they can get a different result."

Jeffrey Ballinger, the city attorney for Palm Springs, said it was disappointing to see plaintiffs sue the city for trying to help restaurants in light of the pandemic. The plaintiffs left out references to the fact that access to The Vineyard is from the street behind the businesses, he added. "We'll review it, we'll talk to the city council and we'll see what direction they want to take."