City of Perris v. Stamper S217738 (Cal. Supreme Court, July 21, 2016)

Why it matters: The California Supreme Court reexamined the rules for determining the valuation of property taken by eminent domain but subject to potential future dedication exactions. This issue is critical where the property being condemned is currently devoted to less than its highest and best use and the condemning agency wants to value it at that less than optimal value while the property owner seeks valuation at its highest and best use. To determine the proper rule, the Court had to consider how the U.S. Supreme Court's decisions concerning dedication apply to condemnations under California law and also the respective roles of judge and jury. The decision was nearly unanimous, with one partially dissenting opinion.

Legal Background: Several different rules coalesced in this opinion. First, the U.S. Supreme Court established the basic rules for property dedication in Nollan v. California Coastal Comm'n (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374. In the former, it held that, to be valid, a dedication requirement had to have an essential nexus to the burden that the property owner's project would have on the public and that might justify the government in rejecting the proposed development outright. In the latter, it augmented the rule by holding that the dedication had to bear a "rough proportionality" to the project's impact. Second, property taken by eminent domain cannot be increased or decreased in value by the impact of the project for which the property is being acquired. Third, if property would have to be dedicated as a condition of acquiring a development permit, then (if that property is condemned) the property must be valued as undeveloped land. Finally, several issues of judge versus jury determination were presented here, including a basic one on which this Court continued to enforce an erroneous view of what English common law required in 1791 (and thus what the Seventh Amendment guaranteed). The opinion is wrong on the latter issue, but it is still the law in California.

Facts: The property owners acquired an approximately 9-acre rectangular plot of undeveloped land in 1985, with plans to expand their metal fabricating businesses. The business expansion never occurred. Thus, when the city sought to condemn the property a quarter century later, it remained undeveloped. The city planned to relocate a road. For this, it needed a 1.66-acre strip of the owners' rectangle. The complicating news was that it split the rectangle, leaving two triangular-shaped parcels on either side of the new road (one was 5.5 acres and the other was 2 acres). That automatically made the valuation more difficult than if the city simply took a 1.66-acre strip along one side, leaving the remainder intact. The parties stipulated that the agricultural value of the strip was $44,000. The owners sought $1.3 million for the strip by valuing it for its highest and best use.

The Decision: The Court turned first to the decision-maker issue, i.e., whether the various issues were for the judge or the jury. The Court's broad generalization at the outset of its discussion that "[t]he Seventh Amendment to the United States Constitution does not guarantee landowners a jury trial in eminent domain proceedings because no such jury right existed in England or the colonies in 1791" is simply wrong. A summary can be found in the British Court of Appeal decision in De Keyser's Royal Hotel Ltd. v. The King (1919) [waiting for attachment] 2 Ch. 222 (surveying English practice from 1708 to 1798). For expanded discussion, see former Manatt counsel Gideon Kanner's recent Daily Journal article, "Our Eminent Right to a Jury" (8/10/2016). Notwithstanding that the Court got it wrong, that will obviously be the law enforced by California courts.

The Court then recited the standard California rule that the California Constitution guarantees a jury only on the issue of compensation, while other issues are for the judge. Thus, if there are mixed questions of law and fact, to which analysis needs to be applied, those questions will be decided by the judge. They are, said the Court, like issues of "means-ends scrutiny" that courts are used to making in constitutional adjudication and to which juries are not well suited. Thus, unless the dedication issues (as laid down in Nollan and Dolan) involve pure facts that will lead to the valuation conclusion, the issues are for the judge.

The Court then dealt with the interplay of a statutory restriction on eminent domain and a judicial explication. The statute is Code of Civil Procedure Section 1263.310, which says that the fair market value of property taken shall not be affected—either up or down—by the impact of the project for which the property is being acquired. The judicial gloss came from City of Porterville v. Young (1987) 195 Cal.App.3d 1260, holding that if the city could lawfully have required a dedication of land in order to permit development, then the land so required is valued at its undeveloped state. The Court combined the rules this way: if a city claims that it would have made a Porterville demand for a dedication, the trial judge must determine whether such a demand was in place before it was probable that the property would be condemned. If so, then the dedication is an effect of the project and must be disregarded for valuation.

Practice Pointers:

  • Most preliminary fact determinations leading to valuation will be made by the judge.
  • As difficult as the Nollan and Dolan rules can be to apply in an ordinary dedication scenario, they become more complex in the condemnation context because of the split between judge and jury.
  • What the government did and when it performed each act will be important in determining how to value the property condemned.