Generally when the United States takes property pursuant to its eminent domain authority, “just compensation” is based on the market value of the property on the date of the taking. However, when acquiring a street, road or public highway, the public entity whose property is taken is entitled to compensation “only to the extent that, as a result of such taking, it is compelled to construct a substitute highway.” (Washington v. United States, 214 F.2d 33, 39 (9th Cir. 1954), emphasis in original.) Where it is unnecessary to replace or provide a substitute, the public entity is only entitled to nominal compensation. The question of whether a replacement facility is “reasonably necessary” is a question for the Court. However, the Court of Appeal for the Ninth Circuit has yet to address the question of – where only a portion of property is taken – whether compensation for the replacement facility is the sole basis of compensation or whether a condemnee could also be entitled to severance damages.

In United States of America v. 1.41 Acres, No. C 14-01781, 2015 U.S. Dist. LEXIS 107484 (N.D. Cal. August 14, 2015), the United States condemned McKay Avenue in Alameda County from the State of California. The United States brought a motion for summary judgment on the issue of just compensation, claiming that defendants the State of California, acting by and through the Department of Public Works, and East Bay Regional Park District were not entitled to severance damages but only to nominal damages. The Court denied the motion for summary judgment as to both issues.

Factual Background

The United States originally owned McKay Avenue in fee, subject to several easements for the benefit of nearby property owners. In 1961, the United States transferred ownership of McKay Avenue, along with over 90 acres of land, to the State of California, subject to the recorded easements and an easement in favor of the United States for “non-exclusive street use.” The State of California developed the site into a state-owned beach and park, which the Park District operates. McKay Avenue provides primary access to the state beach, along with 70 parking spaces for public use.

The United States condemned McKay Avenue in fee, subject to “any exiting rights of ingress and egress benefiting adjoining property,” and subject to “a non-exclusive easement for pedestrian and vehicular ingress and egress” in favor of defendants.

Substitute Facility

In support of its summary judgment motion, the United States argued that no substitute facility is “reasonably necessary” because the United States reserved sufficient rights to defendants and surrounding landowners to obviate any need for a substitute facility. The Court rejected this argument because the reservation of easement in favor of defendants was not for “street use” but rather for “ingress and egress,” and the parking rights derived from the State of California’s prior ownership of McKay Avenue.

The United States also argued that the possibility that it may prevent defendants from using McKay Avenue for parking purposes in the future is too speculative to find that construction of a substitute facility is “reasonably necessary.” Defendants countered that a condemnee is entitled to measure just compensation based on the “most injurious use” of the condemned property. The Court agreed and found that it is appropriate to consider the need for a substitute facility based on the rights actually condemned, rather than based on an unreliable assumption that the current permissive use will exist in perpetuity. The court noted that this analysis could result in a windfall to defendants – who potentially could continue their use of the parking; however, it could conversely result in a windfall to the United States, which “easily could have been avoided by reserving a parking easement for the benefit of defendants.” The Court denied the motion for summary judgment.

Severance Damages

In addition to the compensation for McKay Avenue itself, defendants contend that they are also entitled to severance damages for the diminution in value of the state beach as a result of the taking. The United States argued that the replacement facility analysis is meant to serve as the exclusive measure of compensation.

In opposition, the United States cited to two Supreme Court cases where the Court held that just compensation for the condemnation of a public facility where there is no market is the actual cost of constructing a necessary substitute facility. The Court rejected the United States’ argument that these cases also stand for the proposition that the cost of a substitute facility is the only measure of damages, even where other damages result beyond the loss of a facility.

One District Court in the Ninth Circuit has concluded that the state was entitled to compensation for costs incurred in excess of the costs of constructing a substitute facility.

Here, the Court held that a jury could find defendants have suffered harm to their property interest beyond what can be accounted for by the construction of a substitute for McKay Avenue. Therefore, the Court held that defendants are entitled to present their case to the jury for compensation for both (1) the loss of the facility of McKay Avenue itself, and (2) the diminution in value of the state beach as a result of the condemnation.

Takeaway

For those public agencies whose street, road or highway is condemned by the United States, the law is not firm on whether the agency is entitled to both (1) compensation for a “reasonably necessary” replacement facility, and (2) other monetary damages. However, there are strong arguments discussed in the recent District Court case to support an argument that – where the street, road or highway is part of a larger parcel –just compensation includes both the cost of the replacement facility and severance damages.