Pacific Shores Property Owners Association v. Department of Fish and Wildlife (1/20/16, C070201)

On January 20, 2016, the Court of Appeal for the Second Appellate District of California ruled that where a state agency assumes control of a local flood control process, and it determines to provide less flood protection than historically provided by a local agency in order to protect environmental resources, the state agency is liable in inverse condemnation for a physical taking of plaintiffs’ property, and not liable for a regulatory one. However, the agency also acquires a flowage easement as a result of the taking and the compensation provided to the property‑owners.

A. Background

Del Norte County historically provided flood protection to the Pacific Shores properties by “breaching” a sandbar when Lake Earl water levels rose to 4 feet. When responsibility for the lake’s levels transitioned to the Department of Fish and Game (now the Department of Fish and Wildlife) after the County’s breaching permit expired in 1987, the Department grew concerned that keeping lake levels low would harm residing species of threatened and endangered bird and fish.  The court opinion discusses a series of emergency breaches to the lake made at levels of 6 to 8 feet over a 16‑year period until 2005 when the Department finally established a Management Plan which prescribed breaching the sandbar at 8 to 10 feet.  Plaintiffs, whose properties suffered flooding damage when the water level rose above 8 feet, filed an action for inverse condemnation.

In 2011, the trial court found the Department and the California Coastal Commission liable for a physical taking of plaintiffs’ property due to a decrease in the level of flood protection for the Pacific Shores subdivision. In its appeal, the State contended that plaintiffs’ complaint was untimely and that the State could not be liable because it owed no duty to provide any flood protection and because any protection it provided was reasonable.

B. Statute of Limitations

Citing Public Resources Code Section 30801, the court reversed the judgement against the Commission as untimely since plaintiffs failed to file a petition for writ of administrative mandate within 60 days of the Commission’s decision to approve the permits for breaching at 8 to 10 feet pursuant to the 2005 Management Plan. However, the court affirmed plaintiffs’ cause of action against the Department was timely, rejecting the Department’s argument that the lake was allowed to exceed 4 foot levels for many years prior to the applicable three‑year statute of limitations.  The court applied the Dickinson stabilization doctrine, as clarified by Boling, noting that stabilization “occurs when the environmental forces have substantially and permanently invaded the private property such that the permanent nature of the taking is evident and the extent of the damage is reasonably foreseeable” (quoting Boling v. United States (Fed.Cir. 2000) 220 F.3d at 1368). Applying the Dickinson stabilization doctrine, the court concluded that plaintiffs’ claims did not accrue until the approval the 2005 Management Plan, which established a long‑term policy of breaching at 8 to 10 feet.

C. Physical Taking

The Department asserted it could not be liable for inverse condemnation because the Pacific Shores subdivision was historically prone to flooding and by breaching the sandbar at 8 to 10 feet the Department was providing more protection against flooding than if it had done nothing at all. The court rejected this argument, affirming the trial court’s judgment on a theory of strict liability.  The court held the fact that plaintiffs’ lands were historically subject to natural flooding had little bearing on this case, stating: “The Department was not acting as an insurer against risk when it chose to flood plaintiffs’ lands.  Rather, it was exercising its eminent domain authority by intentionally damaging private property in perpetuity for a public use unrelated to flood protection.”

The Department further argued that the breaching levels established by the 2005 Management Plan were part of a flood control project, and as such, a reasonableness standard rather than strict liability should apply. The court quickly rejected the idea that the Management Plan was part of a flood control project, holding: “This is a case of a project designed to flood private property; the flooding occurred substantially because of the project.”  The court also noted that even if the reasonableness standard applied in this case, the Department acted unreasonably and is therefore subject to inverse condemnation liability.

The court was careful to clarify that their holding was not imposing a duty on the government to provide flood control at any particular level, but that under the circumstances of Pacific Shores, where the government intentionally reduced the level of historic flood control in order to flood plaintiffs’ lands for purposes other than flood control, the agency is strictly liable for the damage its actions caused.

D. Permanent Flowage Easement

At the request of the Department, the court remanded the matter to trial court to award the Department a permanent flowage easement over plaintiffs’ properties, as plaintiffs raised no opposition argument. The court noted, “[i]t is well settled in an inverse condemnation case where there has been found a taking, the public entity acquires an interest in the property in return for the payment of damages” (quoting quoted Salton Bay Marina, Inc. v. Imperial Irrigation Dist. (1985) 172.Cal.App.3d at 963).

 E. Plaintiffs’ Counter Appeals

Plaintiffs asserted that the Commission committed a regulatory taking by retaining land use permitting jurisdiction over the Pacific Shores subdivision since 1981. Plaintiffs further argued that they did not file a petition for administrative mandate because the administrative jurisdiction exception to the doctrine of exhaustion of remedies applied.  The court rejected this argument and affirmed the trail court’s decision, holding that the Commission was not acting outside its jurisdiction and plaintiffs were not excused from the process of seeking a development permit from the Commission and challenging the application of a permit restriction by petition for writ of mandate prior to bringing a claim for a regulatory taking.

The court also affirmed the trail court’s denial of plaintiffs’ request for pre‑condemnation damages based upon its finding that the Commission’s retaining land use authority over the Pacific Shores subdivision was not improper or unreasonable.

Finally, the court affirmed the trail court’s decision to limit the award of attorney fees to the fees actually incurred by plaintiffs in accordance with the terms of plaintiffs’ contingency agreement.

F. Significance of the Case

This case is interesting because it further illuminates, at least partially, the potential overlap of regulatory takings and non‑regulatory, physical takings. While the Department was held liable for the physical taking, the Commission was let off the hook for the potential regulatory taking but for procedural reasons.  Left unsaid by the court was whether the Commission would also have been liable for the regulatory taking, had the proper administrative procedures been followed.  As such, it is a caution to environmental regulatory agencies, which often operate in concert with wildlife management agencies, that the former need to fully consider the physical implications of regulatory decisions made at the behest of, or in collaboration with, the latter.