It is not often that the California Supreme Court steps in to reform legislation that would otherwise be unconstitutional, but that’s what it did in Property Reserve, Inc. v. Superior Court (S.Ct. No. S217738), issued July 21, 2016. The legislation was Code of Civil Procedure sections 1245.010-1245.060, which authorizes precondemnation entry and testing activities by the government on property being considered for condemnation. The statute contemplates a petition being filed by the government describing the entry and testing desired, which the court can authorize after hearing. The court may also require a deposit into court to compensate the property owner for damage to his or her property resulting from the government’s activities.

The backdrop for the case was a massive water conveyance project designed to deliver water from Northern California to Central and Southern California. As part of analyzing the project’s feasibility and environmental impacts, the State Department of Water Resources sought to conduct environmental and geological activities on 150 privately-owned parcels of property in San Joaquin, Contra Costa, Solano, Yolo and Sacramento Counties. The activities consisted of physical mapping and surveying work on the property, as well as drilling deep holes to determine subsoil conditions. The Department filed petitions for precondemnation entry and testing pursuant to the statute; the trial court permitted the entry for the environmental activities but denied it for the geological activity, and on appeal the Court of Appeal denied it for both. The California Supreme Court then granted review.

The questions before the Court were (1) whether the activities contemplated by the government – and particularly the activities involving physical drilling and occupation of the property – were authorized by the precondemnation entry and testing statute, and (2) whether the procedures in the statute meet constitutional requirements, specifically the Fifth Amendment to the United States Constitution, and Article I, Section 19 of the California Constitution.

On the first question, the Court determined that the activities proposed by the government were within the scope of the precondemnation entry and testing statute. The Court noted that the language of the statute allows for “examinations, tests, soundings, borings, and samplings” which contemplates physical intrusions such as drilling on the property. The Court also considered the legislative history of the statute, which reflected that its purpose was to allow a public agency to enter property and perform testing to determine if property is suitable for acquisition.

Although it was a disputed point, the Court assumed – without deciding – that the activities at issue resulted in the taking of a compensable property interest, and therefore any taking must satisfy constitutional requirements. In that regard the Court concluded that the Legislature was authorized to enact the precondemnation entry and testing statutes pursuant to the second sentence of Article I, Section 19, subdivision (a) of the California Constitution, which states: “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.” The Court held that the procedure established by the statute was a form of eminent domain proceeding and within the scope of this constitutional authorization.

However, the court concluded that the statute did violate the requirement in the California Constitution (Art. I, § 19(a)) that a jury determine compensation because there is no provision for a jury determination of compensation in the statute. Noting that “a court may reform a statute to satisfy constitutional requirements” if it concludes that such a reformation effectuates the Legislature’s intent and preference, the Court elected to reform the statute to include the right of a trial by jury with respect to the issue of compensation.

Accordingly, it is now settled that the government may undertake activities which physically impact property, such as drilling or temporary occupation, pursuant to the precondemnation entry and testing statutes. However, the property owner has the right to demand a trial by jury in the statutory proceeding if there is a dispute with respect to appropriate compensation. Alternatively, a property owner can pursue an independent claim for inverse condemnation, which itself includes the right to a trial by jury. If the government ultimately decides to condemn the property, it is likely that the jury determination relating to compensation for the precondemnation entry and relating to compensation for the taking itself would be coordinated or consolidated for trial.