Existing law governing settlement offers in eminent domain proceedings authorizes the recovery of litigation expenses under certain circumstances. Existing law provides that if a court finds, on motion of the defendant, that the offer of the plaintiff was unreasonable and the offer of the defendant was reasonable in light of the evidence admitted and the compensation awarded in the proceeding, then the costs allowed shall include the defendants litigation expenses.

This bill would instead provide that if a court finds, on motion of the defendant, that the offer of the plaintiff was lower than 90% of the compensation awarded in the proceeding, then the court would be required to include the defendants litigation costs in the costs allowed. If the court finds that the offer of the plaintiff was at least 90% and less than 100% of the compensation awarded in the proceeding, the court would be authorized to include the defendants litigation costs in the costs allowed.

Date of Hearing: March 21, 2017

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 408

Author:(Chen) – As Introduced Ver:February 9, 2017

SUBJECT: Eminent domain: final offer of compensation

KEY ISSUE: SHOULD AN Existing law, providing a court with discretion to award litigation expenses to a property OWNER IN an eminent domain action when the court deems the government's final offer to be "Unreasonable," be eliminated in favor of an automatic rule that would award litigation expenses to a property owner when the government's final offer is less THAN 90% of the amount of compensation finally awarded to the property owner at trial?

SYNOPSIS

California's Eminent Domain Law (Code of Civil Procedure Section 1250 et seq.) sets forth a comprehensive framework of the preconditions and procedures for commencing and executing an eminent domain (or "condemnation") action. Determining the amount of "just compensation" – generally the fair market value of the property –is likely the most litigated issue in an eminent domain action. Existing law requires a public entity to make at least two offers for property it seeks to obtain. The first offer is made before the public entity adopts a "resolution of necessity" (setting forth the public need for the taking). This offer must reflect the full appraised value of the property. The "final offer" must be made 20 days prior to a trial to determine just compensation. In order to discourage a public entity from "lowballing" its offer, existing law requires the court to award litigation expenses to the defendant if it finds that the public entity's final offer was unreasonable in light of all the evidence and the amount of compensation finally awarded. This bill would eliminate the court's discretion to consider the "reasonableness" of the final offer and, instead, require the court to award litigation expenses whenever the final offer is less than 90% of the amount of compensation awarded. (If the final offer is somewhere between 90% and 99.9 % of the final award, then the court "may" award litigation expenses.) In addition, existing law permits the court to consider reasonableness of not only the final compensation, but also "in light of the evidence admitted" at trial. It may be, for example, that evidence admitted at trial was not available to the public entity when making its appraisal, and therefore might explain why the final offer was substantially less than the amount of just compensation established at trial. This bill, however, would not allow the court to consider any of those factors. Rather, this bill would replace the judicial discretion with a bright line rule that requires the court to award litigation expenses if the final offer is less than 90% of the final judgment. The author has not presented any evidence suggesting that there is a pattern of courts abusing their discretion by refusing a defendant's reasonable request for litigation expenses. In the absence of such evidence, the Committee may conclude that courts should continue to have the discretion and flexibility they need in order to make fair decisions based on the facts of the case.

SUMMARY: Requires a court to award litigation expenses to a defendant in an eminent domain action if the government's final offer is less than 90% of the compensation finally awarded. Specifically, this bill:

1. Provides that if the court, on motion of the defendant [property owner] in an eminent domain proceeding, finds that the final offer of the plaintiff [government entity] was lower than 90 percent of the compensation awarded in the proceeding, the costs allowed to the defendant shall include the defendant's litigation expenses.
2. Provides that if the court finds that the plaintiff's offer was at least 90 percent but less than 100 percent of the compensation awarded in the proceeding, then the costs allowed to the defendant may include the defendant's litigation expenses.

EXISTING LAW:

1. Provides that private property may be taken or damaged for a public use only when just compensation, as ascertained by a jury, is paid to the owner. (Cal. Const. Article I, Section 19.)
2. Provides that the power of eminent domain may be exercised to acquire property only for a public use, and establishes preconditions and procedures by which a public entity may exercise this power, including a requirement that the public entity adopt a resolution of necessity, as prescribed. (Code of Civil Procedure Sections 1250 et seq.)
3. Requires a public entity, prior to adopting a resolution of necessity and initiating negotiations for the acquisition of the property, to establish an amount that it believes to be just compensation therefor, and to make an offer to the owner or owners of record to acquire the property to the full amount established. The resolution of necessity must contain a declaration that the required compensation offer has been made, or declare that the offer was not made because the owner of record could not be located with reasonable diligence. Sets forth procedures for commencing and executing an action once a resolution of necessity has been adopted. (Government Code Section 7267.2; Code of Civil Procedure Sections 1245.210-1250.370.)
4. Requires the plaintiff, at least 20 days before the date of the trial on issues relating to compensation, to file with the court and serve on the defendant its final offer for compensation. (Code of Civil Procedure Section 1250.410 (a).)
5. Provides that if the court, upon the defendant's motion, finds that the plaintiff's final offer was unreasonable and that the demand of the defendant was reasonable viewed in the light of evidence admitted and the compensation awarded in the proceeding, then the costs awarded to the defendant shall include litigation expenses, as defined. In determining the amount of allowable litigation expenses, the court shall also consider the plaintiff's initial offer made prior to the resolution of necessity. (Code of Civil Procedure Section 1250.410 (b).)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: Eminent domain refers to the inherent power of government to take private property for a public use. Neither the U.S. Constitution nor the California Constitution grants this power; rather, both documents assume that governments naturally possess this power. For example, the Fifth Amendment to the U.S. Constitution is not – contrary to popular opinion – the source of government's power of eminent domain. Rather, the Fifth Amendment presumes a pre-existing power of eminent domain and imposes two constitutional limitations upon it: first, property may only be taken for a "public use;" and, second, the property owner must receive "just compensation." The parallel provision in the California Constitution is somewhat broader in that it requires just compensation whenever the government takes "or damages" private property for a public use. For example, if a public flood control project fails and damages adjacent private property, the property owner may bring an "inverse condemnation" action against the public entity for "just compensation" for the damaged property. Unlike a tort claim, the property owner does not need to show negligence on the part of the government entity, only that the property was damaged because of the failure of the public use project. (See e.g. Paterno v. State of California (2003) 113 Cal. App. 4th 998; rev. denied March 17, 2004.)

A property owner may challenge a public taking of her property in various ways. For example, a property owner may object that the stated purpose is not in fact a "public use." Controversy over the proper meaning of "public use" is better known because this is often the question in cases that reach the U.S. Supreme Court. (See e.g. Kelo v. City of New London 545 U.S. 469.) However, most eminent domain litigation, at the trial court level, involves more mundane matters of calculating "fair market values," based on surrounding and similar properties, in order to determine "just compensation." California's Eminent Domain Law (Code of Civil Procedure Section 1250 et seq.) sets forth the preconditions and procedures for commencing and executing an eminent domain action. This bill would amend a provision of that law that determines when a property owner who defends an eminent domain action is entitled to recover litigation expenses.

Acquisition Offers, Just Compensation, and Litigation Expenses. Under California Eminent Domain Law, a public entity cannot begin an eminent domain proceeding until the entity's governing body first adopts a "resolution of necessity" at a noticed and public meeting. Among other requirements, the resolution of necessity must contain a number of statements and descriptions, including a general statement of the public use that the property will serve and a description of the property to be taken. The resolution must also include a declaration that the governing body has determined all of the following: that the public interest requires the proposed project; that the public project is planned and located in a manner that will serve the greatest public good with the least private injury; that the property described in the resolution is necessary for the proposed project; and that, prior to adopting the resolution, the public entity has appraised the property to determine the amount of just compensation and has offered to purchase the property for the full amount that was determined. Once the offer is made and the resolution of necessity is adopted, if the property owner is still unwilling to accept the offer, then the public entity may commence the action by filing a complaint in superior court. If there is still no agreement after all the complaints and responsive pleadings have been filed, then the matter generally proceeds to a jury trial (or, if both parties agree, to arbitration) to determine the amount that would be just compensation. At least 20 days prior to such a trial, the public entity must file with the court, and serve upon the property owner, one "final offer" of compensation, and the defendant must file and serve its final demand for compensation (assuming it does not accept the final offer). The competing offer and demand, along with any admitted supporting evidence, are considered by a jury in determining the amount of the final award of just compensation.

This bill concerns the circumstances under which a defendant is awarded litigation expenses (primarily attorney, appraiser, and expert witness fees) in addition to the just compensation for the property. Under existing law, if the defendant makes a motion to recover litigation expenses, the court must award them if it finds that "the offer of the plaintiff was unreasonable and the demand of the defendant was reasonable in light of the evidence admitted and the compensation awarded in the proceeding." In other words, if the court finds that the public entity submitted an unreasonably low offer, thereby forcing a reasonable property owner to contest the action rather than take the offer, then the court must order the public entity to pay the property owner's litigation expenses in addition to paying the higher compensation level established at trial. In making this determination, the court will consider all "evidence submitted" at trial as well as the difference between the final offer and final compensation awarded. The court will also consider the reasonableness of the property owner's demand. In short, under existing law the court has the discretion and flexibility to determine whether the public entity's offer was unreasonable; and if the court finds that this is the case, then it must award litigation expenses to the defendant.

This bill would eliminate the judicial discretion described above and replace it with a bright line rule. Under this bill, the court would be required to award litigation expenses if the plaintiff's offer were less than 90% of the amount of compensation awarded in the proceeding, regardless of any other factor or evidence admitted at trial. If the plaintiff's final offer is 90% or more, but still less than 100% of the final compensation, then the court "may" award litigation expenses under this bill.

Stated Need for the Bill vs. Rationale for Existing Law. According to the background material provided by the author, this bill is necessary in order to protect property owners from a public entity's "low-ball offer." According to the author, the property owner must either accept this low offer (getting less than the market value of her property) or go to court to obtain a fair price for the property. If she goes to court, she will not be made whole because the just compensation will be offset by any litigation expenses incurred. The author also points out that while the public entity has access to staff attorneys, paid for at public expense, the property owner will be forced to hire a private attorney. However, this alleged unevenness, even if valid, would not be affected by this bill. If the author believes that it is always inherently unfair to deny a property owner litigation expenses because to do so necessarily leaves the owner less than whole, then the proper response would be to always award litigation expenses to the property owner, because even a fair offer would leave the owner less than whole. The problem with this solution, however, is that it would create an incentive for property owners to hold out, even when they received an offer that was fair, because the property owner would have nothing to lose and much to gain by holding out. Existing law, therefore, seeks to balance the property owner's right to just compensation with the taxpayer's right to have the public entity obtain property for a public use at a fair and reasonable price.

The bill’s assumption that it is inherently unfair to expect a property owner to pay her own litigation expenses when she disputes the value of her property and rejects the government’s final offer also conflicts with long-standing traditions and well-established presumptions of state law. Generally speaking, California follows the so-called "American Rule," by which each litigant is expected to pay his or her legal costs unless otherwise required by statute or contract. The California code is replete with examples where the Legislature has recognized the inequity of the American Rule by specifying certain actions that justify awarding attorney fees and costs to a prevailing party. The provision of the Eminent Domain law that this bill seeks to amend is one such example of a statute that makes an exception to the American Rule. Because as a general rule it would be unfair to make a property owner pay for litigation expenses when she would have gladly sold the property and avoided litigation expenses if she had received an offer for a fair market price, existing law allows the court to award litigation expenses if, after considering all of the factors – including the difference between the final offer and final award – the court finds that the public entity's final offer was unreasonable. However, existing law also allows a court to consider whether the defendant's counter demand was reasonable. Just as it is unfair and inefficient for a public entity to make a low-ball offer, existing law recognizes that it may also be unreasonable for a property owner to hold out for an excessive price, knowing that the public entity has already expended considerable sums purchasing surrounding properties. Under this proposed bill, the delicate balance between these competing interests would be offset. A property owner would arguably have additional incentive to challenge a fair offer because of her increased likelihood of being reimbursed for litigation expenses. Existing law appropriately allows the court to consider the reasonableness of both sides.

In addition, existing law allows the court to consider not just the difference between the final offer and the final award; it also allows the court to consider the evidence admitted at trial. For example, a public entity may make a good faith offer, but evidence of some special circumstance admitted at trial (but unknown to the public entity at the time of the offer) may lead the jury to set a considerably higher price. This is not to say that under such circumstances a court would not award litigation expenses; rather, it is to say that under existing law the court will consider this evidence, and more, in making its determination.

In sum, there may be insufficient evidence of a pattern of courts denying defendants’ requests for litigation expenses to justify a change in existing law. It may be true, as critics of eminent domain have noted more generally, that there is an inherent unfairness whenever the government compels a private property owner to sell her property when she has no desire to do so. It may also be unfair that a government entity generally has staff attorneys while an individual property owner must hire a private attorney. But those larger questions are not at issue in or addressed by this bill. The only question before the Committee is which method should be used to determine when litigation expenses should be awarded: a method that gives a court the discretion and flexibility to consider the reasonableness of both parties in light of all of the evidence admitted at trial and the difference between the final offer and the final award; or a method which assumes that a public entity's final offer is by definition "unreasonable" if it is less than 90% of the amount eventually awarded, without any regard for the reasonableness of the parties or the evidence admitted at trial. In the absence of any showing that there is a pattern of judicial abuse of discretion, the Committee may conclude that discretion and flexibility is preferable to this bill’s proposed numerical formula.

ARGUMENTS IN SUPPORT: According to the author, "the [eminent domain] system is weighted against the private property owner obtaining compensation that is just by any reasonable standard, beginning with the issue of attorney's fees. Whereas the government entity likely has taxpayer-funded attorneys on staff, the private citizen must bear the costs of his or her legal representation, unless he or she can demonstrate that to the court that the government's offer was 'unreasonable' while his or her counter was 'reasonable' – concepts that are not defined in statutes." As a result, the author contends, the property owner must either accept "an obviously low-ball offer, or hire an attorney, with the distinct possibility that the cost of the lawyer will come out of his or her pocket, reducing whatever compensation he or she will receive from the property." The author believes that this measure will "substantially increase the number of scenarios where the owner is made whole" by guaranteeing that litigation expenses will be covered "whenever the government's offer was less than 90% of the amount ultimately awarded and would give the court discretion to award litigation costs if the offer is between 90% and 99.9% of the final compensation." The author believes that this measure will do all of the following: provide greater incentive for the public entity to offer "truly fair and just" amounts; give the owner more access to our legal system to ensure that he or she is made whole; ensure that litigation expenses do not offset the owner's just compensation; give trial courts more guidance; and provide more certainty in settlement negotiations.

REGISTERED SUPPORT / OPPOSITION:

Support

Conference of California Bar Associations (sponsor)

Opposition

None on file

Analysis Prepared by: Thomas Clark / JUD. / (916) 319-2334

Date of Hearing: March 14, 2017

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 408

Author:(Chen) – As Introduced Ver:February 9, 2017

SUBJECT: Eminent domain: final offer of compensation

KEY ISSUE: SHOULD AN Existing law, providing a court with discretion to award litigation expenses to a property OWNER IN an eminent domain action when the court deems the government's final offer to be "Unreasonable," be eliminated in favor of an automatic rule that would award litigation expenses to a property owner when the government's final offer is less THAN 90% of the amount of compensation finally awarded to the property owner at trial?

SYNOPSIS

California's Eminent Domain Law (Code of Civil Procedure Section 1250 et seq.) sets forth a comprehensive framework of the preconditions and procedures for commencing and executing an eminent domain (or "condemnation") action. Determining the amount of "just compensation" – generally the fair market value of the property –is likely the most litigated issue in an eminent domain action. Existing law requires a public entity to make at least two offers for property it seeks to obtain. The first offer is made before the public entity adopts a "resolution of necessity" (setting forth the public need for the taking). This offer must reflect the full appraised value of the property. The "final offer" must be made 20 days prior to a trial to determine just compensation. In order to discourage a public entity from "lowballing" its offer, existing law requires the court to award litigation expenses to the defendant if it finds that the public entity's final offer was unreasonable in light of all the evidence and the amount of compensation finally awarded. This bill would eliminate the court's discretion to consider the "reasonableness" of the final offer and, instead, require the court to award litigation expenses whenever the final offer is less than 90% of the amount of compensation awarded. (If the final offer is somewhere between 90% and 99.9 % of the final award, then the court "may" award litigation expenses.) In addition, existing law permits the court to consider reasonableness of not only the final compensation, but also "in light of the evidence admitted" at trial. It may be, for example, that evidence admitted at trial was not available to the public entity when making its appraisal, and therefore might explain why the final offer was substantially less than the amount of just compensation established at trial. This bill, however, would not allow the court to consider any of those factors. Rather, this bill would replace the judicial discretion with a bright line rule that requires the court to award litigation expenses if the final offer is less than 90% of the final judgment. The author has not presented any evidence suggesting that there is a pattern of courts abusing their discretion by refusing a defendant's reasonable request for litigation expenses. In the absence of such evidence, the Committee may conclude that courts should continue to have the discretion and flexibility they need in order to make fair decisions based on the facts of the case.

SUMMARY: Requires a court to award litigation expenses to a defendant in an eminent domain action if the government's final offer is less than 90% of the compensation finally awarded. Specifically, this bill:

1. Provides that if the court, on motion of the defendant [property owner] in an eminent domain proceeding, finds that the final offer of the plaintiff [government entity] was lower than 90 percent of the compensation awarded in the proceeding, the costs allowed to the defendant shall include the defendant's litigation expenses.
2. Provides that if the court finds that the plaintiff's offer was at least 90 percent but less than 100 percent of the compensation awarded in the proceeding, then the costs allowed to the defendant may include the defendant's litigation expenses.

EXISTING LAW:

1. Provides that private property may be taken or damaged for a public use only when just compensation, as ascertained by a jury, is paid to the owner. (Cal. Const. Article I, Section 19.)
2. Provides that the power of eminent domain may be exercised to acquire property only for a public use, and establishes preconditions and procedures by which a public entity may exercise this power, including a requirement that the public entity adopt a resolution of necessity, as prescribed. (Code of Civil Procedure Sections 1250 et seq.)
3. Requires a public entity, prior to adopting a resolution of necessity and initiating negotiations for the acquisition of the property, to establish an amount that it believes to be just compensation therefor, and to make an offer to the owner or owners of record to acquire the property to the full amount established. The resolution of necessity must contain a declaration that the required compensation offer has been made, or declare that the offer was not made because the owner of record could not be located with reasonable diligence. Sets forth procedures for commencing and executing an action once a resolution of necessity has been adopted. (Government Code Section 7267.2; Code of Civil Procedure Sections 1245.210-1250.370.)
4. Requires the plaintiff, at least 20 days before the date of the trial on issues relating to compensation, to file with the court and serve on the defendant its final offer for compensation. (Code of Civil Procedure Section 1250.410 (a).)
5. Provides that if the court, upon the defendant's motion, finds that the plaintiff's final offer was unreasonable and that the demand of the defendant was reasonable viewed in the light of evidence admitted and the compensation awarded in the proceeding, then the costs awarded to the defendant shall include litigation expenses, as defined. In determining the amount of allowable litigation expenses, the court shall also consider the plaintiff's initial offer made prior to the resolution of necessity. (Code of Civil Procedure Section 1250.410 (b).)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: Eminent domain refers to the inherent power of government to take private property for a public use. Neither the U.S. Constitution nor the California Constitution grants this power; rather, both documents assume that governments naturally possess this power. For example, the Fifth Amendment to the U.S. Constitution is not – contrary to popular opinion – the source of government's power of eminent domain. Rather, the Fifth Amendment presumes a pre-existing power of eminent domain and imposes two constitutional limitations upon it: first, property may only be taken for a "public use;" and, second, the property owner must receive "just compensation." The parallel provision in the California Constitution is somewhat broader in that it requires just compensation whenever the government takes "or damages" private property for a public use. For example, if a public flood control project fails and damages adjacent private property, the property owner may bring an "inverse condemnation" action against the public entity for "just compensation" for the damaged property. Unlike a tort claim, the property owner does not need to show negligence on the part of the government entity, only that the property was damaged because of the failure of the public use project. (See e.g. Paterno v. State of California (2003) 113 Cal. App. 4th 998; rev. denied March 17, 2004.)

A property owner may challenge a public taking of her property in various ways. For example, a property owner may object that the stated purpose is not in fact a "public use." Controversy over the proper meaning of "public use" is better known because this is often the question in cases that reach the U.S. Supreme Court. (See e.g. Kelo v. City of New London 545 U.S. 469.) However, most eminent domain litigation, at the trial court level, involves more mundane matters of calculating "fair market values," based on surrounding and similar properties, in order to determine "just compensation." California's Eminent Domain Law (Code of Civil Procedure Section 1250 et seq.) sets forth the preconditions and procedures for commencing and executing an eminent domain action. This bill would amend a provision of that law that determines when a property owner who defends an eminent domain action is entitled to recover litigation expenses.

Acquisition Offers, Just Compensation, and Litigation Expenses. Under California Eminent Domain Law, a public entity cannot begin an eminent domain proceeding until the entity's governing body first adopts a "resolution of necessity" at a noticed and public meeting. Among other requirements, the resolution of necessity must contain a number of statements and descriptions, including a general statement of the public use that the property will serve and a description of the property to be taken. The resolution must also include a declaration that the governing body has determined all of the following: that the public interest requires the proposed project; that the public project is planned and located in a manner that will serve the greatest public good with the least private injury; that the property described in the resolution is necessary for the proposed project; and that, prior to adopting the resolution, the public entity has appraised the property to determine the amount of just compensation and has offered to purchase the property for the full amount that was determined. Once the offer is made and the resolution of necessity is adopted, if the property owner is still unwilling to accept the offer, then the public entity may commence the action by filing a complaint in superior court. If there is still no agreement after all the complaints and responsive pleadings have been filed, then the matter generally proceeds to a jury trial (or, if both parties agree, to arbitration) to determine the amount that would be just compensation. At least 20 days prior to such a trial, the public entity must file with the court, and serve upon the property owner, one "final offer" of compensation, and the defendant must file and serve its final demand for compensation (assuming it does not accept the final offer). The competing offer and demand, along with any admitted supporting evidence, are considered by a jury in determining the amount of the final award of just compensation.

This bill concerns the circumstances under which a defendant is awarded litigation expenses (primarily attorney, appraiser, and expert witness fees) in addition to the just compensation for the property. Under existing law, if the defendant makes a motion to recover litigation expenses, the court must award them if it finds that "the offer of the plaintiff was unreasonable and the demand of the defendant was reasonable in light of the evidence admitted and the compensation awarded in the proceeding." In other words, if the court finds that the public entity submitted an unreasonably low offer, thereby forcing a reasonable property owner to contest the action rather than take the offer, then the court must order the public entity to pay the property owner's litigation expenses in addition to paying the higher compensation level established at trial. In making this determination, the court will consider all "evidence submitted" at trial as well as the difference between the final offer and final compensation awarded. The court will also consider the reasonableness of the property owner's demand. In short, under existing law the court has the discretion and flexibility to determine whether the public entity's offer was unreasonable; and if the court finds that this is the case, then it must award litigation expenses to the defendant.

This bill would eliminate the judicial discretion described above and replace it with a bright line rule. Under this bill, the court would be required to award litigation expenses if the plaintiff's offer were less than 90% of the amount of compensation awarded in the proceeding, regardless of any other factor or evidence admitted at trial. If the plaintiff's final offer is 90% or more, but still less than 100% of the final compensation, then the court "may" award litigation expenses under this bill.

Stated Need for the Bill vs. Rationale for Existing Law. According to the background material provided by the author, this bill is necessary in order to protect property owners from a public entity's "low-ball offer." According to the author, the property owner must either accept this low offer (getting less than the market value of her property) or go to court to obtain a fair price for the property. If she goes to court, she will not be made whole because the just compensation will be offset by any litigation expenses incurred. The author also points out that while the public entity has access to staff attorneys, paid for at public expense, the property owner will be forced to hire a private attorney. However, this alleged unevenness, even if valid, would not be affected by this bill. If the author believes that it is always inherently unfair to deny a property owner litigation expenses because to do so necessarily leaves the owner less than whole, then the proper response would be to always award litigation expenses to the property owner, because even a fair offer would leave the owner less than whole. The problem with this solution, however, is that it would create an incentive for property owners to hold out, even when they received an offer that was fair, because the property owner would have nothing to lose and much to gain by holding out. Existing law, therefore, seeks to balance the property owner's right to just compensation with the taxpayer's right to have the public entity obtain property for a public use at a fair and reasonable price.

The bill’s assumption that it is inherently unfair to expect a property owner to pay her own litigation expenses when she disputes the value of her property and rejects the government’s final offer also conflicts with long-standing traditions and well-established presumptions of state law. Generally speaking, California follows the so-called "American Rule," by which each litigant is expected to pay his or her legal costs unless otherwise required by statute or contract. The California code is replete with examples where the Legislature has recognized the inequity of the American Rule by specifying certain actions that justify awarding attorney fees and costs to a prevailing party. The provision of the Eminent Domain law that this bill seeks to amend is one such example of a statute that makes an exception to the American Rule. Because as a general rule it would be unfair to make a property owner pay for litigation expenses when she would have gladly sold the property and avoided litigation expenses if she had received an offer for a fair market price, existing law allows the court to award litigation expenses if, after considering all of the factors – including the difference between the final offer and final award – the court finds that the public entity's final offer was unreasonable. However, existing law also allows a court to consider whether the defendant's counter demand was reasonable. Just as it is unfair and inefficient for a public entity to make a low-ball offer, existing law recognizes that it may also be unreasonable for a property owner to hold out for an excessive price, knowing that the public entity has already expended considerable sums purchasing surrounding properties. Under this proposed bill, the delicate balance between these competing interests would be offset. A property owner would arguably have additional incentive to challenge a fair offer because of her increased likelihood of being reimbursed for litigation expenses. Existing law appropriately allows the court to consider the reasonableness of both sides.

In addition, existing law allows the court to consider not just the difference between the final offer and the final award; it also allows the court to consider the evidence admitted at trial. For example, a public entity may make a good faith offer, but evidence of some special circumstance admitted at trial (but unknown to the public entity at the time of the offer) may lead the jury to set a considerably higher price. This is not to say that under such circumstances a court would not award litigation expenses; rather, it is to say that under existing law the court will consider this evidence, and more, in making its determination.

In sum, there may be insufficient evidence of a pattern of courts denying defendants’ requests for litigation expenses to justify a change in existing law. It may be true, as critics of eminent domain have noted more generally, that there is an inherent unfairness whenever the government compels a private property owner to sell her property when she has no desire to do so. It may also be unfair that a government entity generally has staff attorneys while an individual property owner must hire a private attorney. But those larger questions are not at issue in or addressed by this bill. The only question before the Committee is which method should be used to determine when litigation expenses should be awarded: a method that gives a court the discretion and flexibility to consider the reasonableness of both parties in light of all of the evidence admitted at trial and the difference between the final offer and the final award; or a method which assumes that a public entity's final offer is by definition "unreasonable" if it is less than 90% of the amount eventually awarded, without any regard for the reasonableness of the parties or the evidence admitted at trial. In the absence of any showing that there is a pattern of judicial abuse of discretion, the Committee may conclude that discretion and flexibility is preferable to this bill’s proposed numerical formula.

ARGUMENTS IN SUPPORT: According to the author, "the [eminent domain] system is weighted against the private property owner obtaining compensation that is just by any reasonable standard, beginning with the issue of attorney's fees. Whereas the government entity likely has taxpayer-funded attorneys on staff, the private citizen must bear the costs of his or her legal representation, unless he or she can demonstrate that to the court that the government's offer was 'unreasonable' while his or her counter was 'reasonable' – concepts that are not defined in statutes." As a result, the author contends, the property owner must either accept "an obviously low-ball offer, or hire an attorney, with the distinct possibility that the cost of the lawyer will come out of his or her pocket, reducing whatever compensation he or she will receive from the property." The author believes that this measure will "substantially increase the number of scenarios where the owner is made whole" by guaranteeing that litigation expenses will be covered "whenever the government's offer was less than 90% of the amount ultimately awarded and would give the court discretion to award litigation costs if the offer is between 90% and 99.9% of the final compensation." The author believes that this measure will do all of the following: provide greater incentive for the public entity to offer "truly fair and just" amounts; give the owner more access to our legal system to ensure that he or she is made whole; ensure that litigation expenses do not offset the owner's just compensation; give trial courts more guidance; and provide more certainty in settlement negotiations.

REGISTERED SUPPORT / OPPOSITION:

Support

Conference of California Bar Associations (sponsor)

Opposition

None on file

Analysis Prepared by: Thomas Clark / JUD. / (916) 319-2334