In California eminent domain cases, a property or business owner is entitled to recover litigation expenses (attorneys’ fees and expert costs) when the public agency’s final offer of compensation is unreasonable and the property owner’s final demand is reasonable.  (See Code Civ. Proc., § 1250.410.)  But what happens when the government agency’s offer is subject to approval of a federal agency, the City Council, or the Board of Supervisors?  Is this a “reasonable” offer under Section 1250.410?  This week, the California Court of Appeal in City and County of San Francisco v. PCF Acquisitionco, LLC (May 26, 2015), confirmed that such contingent final offers cannot be deemed reasonable, thereby potentially exposing the public agency to paying the owner’s litigation expenses.

The City sought to acquire property for a subway station.  The valuation opinions ranged from $3.8 million to $10.875 million.  Shortly before trial, the parties exchanged statutory offers and demands.  The City’s final offer of $5.5 million was made contingent on approval from the Federal Transit Administration (FTA), along with the Board of Directors.  The property owner’s final demand was for $8.6 million.  No settlement was reached, and the jury determined the amount of just compensation for the property to be over $7 million.  The owner moved to recover its litigation expenses under section 1250.410.

The trial court denied the motion and found that the City’s offer was reasonable.  The court reasoned that the City was not “unyielding” in making its offer; it considered PCF’s statement of valuation, the risks of trial, and made an offer that exceeded its own appraisal by 60%.

On appeal, the Court focused on whether section 1250.410 is satisfied if the agency’s final offer is contingent upon the approval of other agencies.  The Court found that the Legislature did not intend for a condemnee to:

[C]hoose between entering into an uncertain and contingent bargain or risk losing any chance of recovering its litigation expenses if it proceeds to trial.

As a result, the Court held that the agency’s final offer was unreasonable for purposes of section 1250.410, and remanded the case to the trial court to determine the amount of litigation expenses to be awarded (assuming the owner’s final offer was reasonable).

In light of this decision, it is important for government agencies to plan ahead and ensure that all necessary approvals are made prior to making a final pre-trial settlement offer pursuant to section 1250.410; otherwise, a contingent offer may be found unreasonable.  Given the short period of time between the parties’ exchange of appraisals and the date upon which final settlement offers are exchanged, this timing becomes increasingly difficult where federal funding is involved and FTA or Federal Highway Administration approval is necessary, or where Boards or City Councils do not meet frequently.

Be on the lookout for a more detailed discussion of the case through an e-alert that will be following shortly.