Neli N. Palma
Deputy Attorney General, Office of the Attorney General
1300 I St 12th Fl
Sacramento , CA 95814
Phone: (916) 445-2482
Fax: (916) 324-5397
Email: Neli.Palma@doj.ca.gov
The views expressed here are solely those of the author in her private capacity and do not in any way represent the views of the Department of Justice.
In this article and accompanying self-study test, readers will learn about the procedures for conducting discovery in eminent domain cases, calculating the damages that may be awarded, and typical compensation issues that arise in litigation.
Introduction
Under the U.S. and California Constitutions, "Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner. The Legislature may provide for possession by the condemnor following commencement of eminent domain proceedings upon deposit in court and prompt release to the owner of money determined by the court to be the probable amount of just compensation." Saratoga Fire Protection Dist. v. Hackett, 97 Cal. App. 4th 895 (2002), citing, Cal. Const., art. I, Section 19, and U.S. Const., Fifth and 14th Amends; see also Palazzolo v. Rhode Island, 533 U.S. 606 (2001) ("The Takings Clause of the Fifth Amendment, applicable to the States through the Fourteenth Amendment, [citation], prohibits the government from taking private property for public use without just compensation").
In California, the condemnation proceeding is commenced by the filing of a complaint in eminent domain. Code Civ. Proc., Section 1250.110. If the condemning entity requires prejudgment possession, it may move the court for an order for possession pursuant to Code of Civil Procedure Section 1255.410. Discovery is conducted by the parties, and damages are calculated to determine the fair market value of the property at issue.
Discovery and Exchange of Valuation Data
The California Eminent Domain Law establishes a special procedure for designating expert witnesses and exchanging expert valuation opinions. Code Civ. Proc., Sections 1258.210-1258.230. These provisions supplement, but do not replace, restrict or prevent the use of other discovery procedures or limit matters that are discoverable in eminent domain proceedings. Code Civ. Proc., Section 1258.010.
Not later than 10 days after the trial date is selected, any party may file and serve on any other party a demand to exchange lists of expert witnesses and statements of valuation data. Code Civ. Proc., Section 1258.210. The date for the exchange shall be 90 days prior to the trial on the issue of compensation or the date set by the court or by agreement of the parties. Code Civ. Proc., Section 1258.220.
The list of expert witnesses "shall include the name, business or residence address, and business, occupation, or profession of each person intended to be called as an expert witness by the party and a statement of the subject matter to which his testimony relates." Code Civ. Proc., Section 1258.240. The statement of valuation data must include a statement concerning whether the witness will testify to an opinion, and with regard to each matter upon which the witness will give an opinion, must state what that opinion is and, to the extent the opinion is based on them, must also set forth matters including the interest being valued, the date of valuation used by the witness, and the highest and best use of the property. See Code Civ. Proc., Section 1258.260, subds. (a), (b) (specifying required contents of statement).
The consequence for failure to comply is preclusion of the expert witness. Code Civ. Proc., Section 1258.280. But, "the trial court is imbued with discretion to permit a witness to testify regarding opinions or data which should have been included but were omitted from the statement 'upon such terms as may be just' and under the circumstances that the party calling the witness made a good faith effort to comply with the requirements for exchange of valuation data ... ; he diligently gave notice to the opposing party after determining 'to have a witness called by him testify ... to any opinion or data required to be listed ... but which was not so listed' ... ; and the omission of the opinion or data was the product of 'mistake, inadvertence, surprise, or excusable neglect.'" City of Santa Clarita v. NTS Technical Systems, 137 Cal. App. 4th 264 (2006).
Twenty days before the compensation trial, the agency must make a final offer and the owner a final demand. Code Civ. Proc., Section 1250.410, subd. (a). "The offer and the demand shall include all compensation required pursuant to [eminent domain law], including compensation for loss of goodwill, if any, and shall state whether interest and costs are included." Ibid. The purpose of this provision is to encourage pretrial settlement of eminent domain actions and make owners whole. City and County of San Francisco v. PCF Acquisitionco, LLC, 237 Cal. App. 4th 90 (2015).
After trial, a property or business owner may, within 30 days of entry of judgment, move the court to recover litigation expenses; the request will be granted if the court finds that the agency's final offer was unreasonable and the owner's final demand was reasonable "in light of the evidence admitted and the compensation awarded in the proceeding." Code Civ. Proc., Section 1250.410, subd. (b); see Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp., 16 Cal. 4th 694, 720 (1997) (explaining how a court determines "reasonableness").
Compensation and Fair Market Value
An owner whose property is taken for public use is entitled to just compensation. The compensation due is the "fair market value" as defined by Code of Civil Procedure Section 1263.320.
"The fair market value of the property taken is the highest price 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 the uses and purposes for which the property is reasonably adaptable and available." Code Civ. Proc., Section 1263.320, subd. (a). "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." Code Civ. Proc., Section 1263.320, subd. (b).
"[T]he fair market value of property taken has not been limited to the value of the property as used at the time of the taking, but has long taken into account the 'highest and most profitable use to which the property might be put in the reasonably near future, to the extent that the probability of such a prospective use affects the market value.'" City of San Diego v. Neumann, 6 Cal. 4th 738 (1993); see also City of Los Angeles v. Decker, 18 Cal. 3d 860 (1977) (fair market value is the highest and best use for which the property is geographically and economically adaptable).
Date of Value and Methodologies
If a deposit of the probable just compensation is made, that deposit sets the "date of valuation." Code Civ. Proc., Section 1263.110, subd. (a). When no deposit is made, then the date of value is the date of commencement of the action "[i]f the issue of compensation is brought to trial within one year after commencement of the proceeding." Code Civ. Proc., Section 1263.120. Alternatively, the date of valuation is the date of start of the trial "if the issue of compensation is not brought to trial within one year after commencement of the proceeding." Code Civ. Proc., Section 1263.130.
With respect to methodologies for appraisals, the "appraisal trinity" encompasses three methods used by appraisers to determine the fair market value: (1) the current cost of reproducing (or replacing) the property less depreciation from all sources; (2) the "market data" value as indicated by recent sale of comparable properties; and (3) the "income approach," or the value which the property's net earning power will support based upon the capitalization of net income. See Redevelopment Agency v. First Christian Church, 140 Cal. App. 3d 690 (1983) (explaining that the trinity was codified in Evid. Code, Sections 815-820).
Typical Compensation Issues
To recover precondemnation damages, the owner must show that after an "announcement of intent to condemn" there is unreasonable delay in bringing the eminent domain action or there was other "oppressive conduct" by the condemnor which depresses the value of the property. Klopping v. City of Whittier, 8 Cal. 3d 39 (1972); Contra Costa Water Dist. v. Vaquero Farms, Inc., 58 Cal. App. 4th 883 (1997). A question may arise with regard to crossing from the "general planning stage" to the acquisition phase. For example, Selby Realty Co. v. City of San Buenaventura, 10 Cal. 3d 110 (1973), determined that the enactment of a general plan showing a proposed street extension on property did not amount to an announcement of intent to condemn. But, Jones v. People ex rel. Dept. of Transportation, 22 Cal. 3d 144 (1978), awarded damages when the state went beyond the announcement of a freeway plan, denying the owner a right of access to a local street when the owner wanted to subdivide the property.
Severance damages or damage to the remainder of property not condemned may be awarded. "When a condemnation action severs the land by taking only a part of it, the owner may be entitled to an additional sum as compensation for the economic effect of the condemnation on the value of the remaining property. ([Code of Civ. Proc., ]§ 1263.410, subd. (a).) Severance damages are measured by the difference in value of the remaining portion of the property before and after the taking." Vaquero Farms. Code of Civil Procedure Section 1263.420 defines severance damages as damage to the remainder caused by either or both of the following: (a) the severance of the remainder from the part taken; (b) the construction and use of the project for which the property is taken in the manner proposed by the plaintiff whether or not the damage is caused by a portion of the project located on the part taken.
With regard to loss of access or substantial impairment of access, an owner may be able to recover severance damages for substantial impairment of the right of ingress and egress. Border Business Park, Inc. v. City of San Diego, 142 Cal. App. 4th 1538 (2006). However, under the Border Business Park case, "[i]f some reasonable means of access remains, even if it is impeded by heavy traffic, there has been no compensable impairment of the right of access."
Loss of goodwill may also constitute recoverable damages. Code of Civil Procedure Section 1263.510 defines "goodwill" for purposes of damages as "the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage." Code Civ. Proc., Section 1263.510, subd. (b). The right to loss of goodwill damages is statutory. Hladek v. City of Merced, 69 Cal. App. 3d 585 (1977). "A business owner has the right to a jury determination on the amount of goodwill lost." People ex rel. Dept. of Transportation v. Dry Canyon Enterprises, LLC, 211 Cal. App. 4th 486 (2012) (emphasis in original). But, under the case, "a business owner is entitled to a jury trial on the amount of goodwill lost by a taking only if he or she first establishes, as a threshold matter, that the business had goodwill to lose." More generally, the business owner has the initial burden of showing entitlement to compensation for lost business goodwill; once entitlement is established, the jury or other trier of fact must determine the amount of compensation for lost goodwill. Inglewood Redevelopment Agency v. Aklilu, 153 Cal. App. 4th 1095 (2007).
No speculative damages may be awarded. Compensation does not extend to damages that are "conjectural or speculative." Neumann. The owner is "entitled to receive the value of what he has been deprived of, and no more." Mt. San Jacinto Community College Dist. v. Superior Court, 40 Cal.4th 648 (2007).
The views expressed here are solely those of the author in her private capacity and do not in any way represent the views of the Department of Justice.