SB 1167: Eminent domain: final offer of compensation.

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 85% 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 85% 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.

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 1167 (Author:Anderson)

Version: February 14, 2018

Hearing Date: May 8, 2018

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Eminent domain: final offer of compensation

DESCRIPTION

This bill would provide that if a plaintiff in an eminent domain action makes an offer on the property at issue that is lower than 85 percent of the compensation ultimately awarded to the defendant property owner in the proceeding, the court must award the defendant their litigation expenses. If the court finds the offer was at least 85 percent and less than 100 percent of the compensation awarded, it would be authorized to award the defendant their litigation expenses.

BACKGROUND

Eminent domain is considered a power inherent in our state and federal governments. Article I, Section 19, of the California Constitution provides restrictions on that power: “Private property may be taken or damaged for a public use and only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner.” Statutory law guides the determination of what is “just compensation” and provides the processes by which the ultimate award to a defendant property is determined. “Just compensation” is defined as the fair market value of the property taken. (Code Civ. Proc. Sec. 1263.310.) The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. (Code Civ. Proc. Sec. 1263.320.)

If the parties cannot agree on what is just compensation for the relevant property, litigation may advance pursuant to California’s Eminent Domain Law. (Code Civ. Proc. Sec. 1230.010 et seq.) Relevant here, a plaintiff public entity must make a final offer at least 20 days before trial on the issue of just compensation, and the defendant must make its final demand. If the court, on motion of the defendant made within 30 days after entry of judgment, finds that the offer of the plaintiff was unreasonable and that the demand of the defendant was reasonable viewed in the light of the evidence admitted and the compensation awarded in the proceeding, the costs allowed shall include the defendant’s litigation expenses.

This bill would dramatically alter this determination by making offers that are less than 85 percent of the compensation ultimately awarded per se unreasonable and require an award of litigation expenses to the defendant regardless of the evidence produced at trial or the reasonableness of the defendant’s demand. Courts would only retain discretion in determining whether an award of litigation expenses is warranted where the offer is between 85 and 100 percent of the ultimate compensation awarded.

CHANGES TO EXISTING LAW

Existing federal law, the United States Constitution, provides that “private property [shall not] be taken for public use, without just compensation.” (U.S. Const. Am. V.)

Existing state law, the California Constitution, 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. art. I, Sec. 19.)

Existing state law provides that the measure of “just compensation” is the fair market value of the property taken. (Code Civ. Proc. Sec. 1263.310.) The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. The fair market value of property taken for which there is no relevant, comparable market is its value on the date of valuation as determined by any method of valuation that is just and equitable. (Code Civ. Proc. Sec. 1263.320.)

Existing state law provides that at least 20 days prior to the date of the trial on issues relating to compensation, a plaintiff must file with the court and serve on the defendant its final offer of compensation in the proceeding and the defendant must file and serve on the plaintiff its final demand for compensation in the proceeding. The offer and the demand must include all compensation required. These offers and demands are the only offers and demands considered by the court in determining the entitlement, if any, to litigation expenses. (Code Civ. Proc. Sec. 1250.410(a).)

Existing state law provides that, if the court, on motion of the defendant made within 30 days after entry of judgment, finds that the offer of the plaintiff was unreasonable and that the demand of the defendant was reasonable viewed in the light of the evidence admitted and the compensation awarded in the proceeding, the costs allowed pursuant to Section 1268.710 of the Code of Civil Procedure shall include the defendant’s litigation expenses. “Litigation expenses” are defined to include the party’s reasonable attorney’s fees and costs, including reasonable expert witness and appraiser fees. In determining the amount of litigation expenses allowed, the court is required to consider the offer required to be made by the plaintiff pursuant to Section 7267.2 of the Government Code, any deposit made by the plaintiff, and any other written offers and demands filed and served before or during the trial. (Code Civ. Proc. Sec. 1250.410.)

This bill would provide that if a plaintiff in an eminent domain action makes an offer on the property at issue that is lower than 85 percent of the compensation ultimately awarded to the defendant property owner in the proceeding, the court must award the defendant their litigation expenses. If the court finds the offer was at least 85 percent and less than 100 percent of the compensation awarded, it would be authorized to award the defendant their litigation expenses.

COMMENT

1. Stated need for the bill

According to the author:

SB 1167 will bring clarity and equity to the eminent domain process by establishing a bright line to determine whether a government’s offer for property is reasonable or unreasonable, and therefore whether the property owner is entitled to recover litigation costs. Existing law provides no clear-cut guidance; there are cases where an offer of 50% of final compensation was deemed unreasonable, and other cases where an offer of only 11% of the final award was held to be reasonable and no attorney’s fees awarded. By removing this uncertainty, SB 1167 will encourage governments to make offers more closely approaching the value of the property being taken, obviating the need for litigation in many cases. It also will encourage property owners to obtain counsel and fight for their rights in cases where the governmental offer is clearly unreasonable, with the knowledge that those costs can be recouped.

2. Stripping discretion from courts to apply a rigid and flawed mathematical formula

Existing law defines litigation expenses in an eminent domain action to include a party’s reasonable attorney’s fees and costs, including reasonable expert witness and appraiser fees. This bill proposes to protect against unreasonable offers in eminent domain proceedings by making it easier for property owners to recover litigation expenses when a court has ordered a public entity to pay compensation that is higher than the compensation offered by the public entity. Current law lays out a clear process for making a determination regarding these expenses.

First, the parties are required to file with the court, and serve on each other, final offers and demands, at least 20 days before trial; the plaintiff makes its final offer and the defendant makes its final demand with respect to the property underlying the action, including all compensation required.

Second, the court, on motion of the defendant, may determine whether the defendant is entitled to its litigation expenses. If the court, relying on the final offer and demand discussed above, finds such offer of the plaintiff is unreasonable and such demand of the defendant is reasonable, it shall award the defendant its litigation expenses.

In making this determination, the court is guided by not only the final offer and demand, but also the evidence admitted in the proceeding and the ultimate compensation awarded. The California Supreme Court has laid out several factors that serve as “general guidelines for determining the reasonableness or unreasonableness of offers”:

• the amount of the difference between the offer and the compensation awarded;
• the percentage of the difference between the offer and award; and
• the good faith, care and accuracy in how the amount of offer and the amount of demand, respectively, were determined.

(Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 720 (LA Metro).)

This bill would dramatically alter this determination. It would remove the court’s discretion to consider any of the evidence admitted in the proceeding and require the court to apply a rigid mathematical formula to determine whether litigation expenses are warranted. The court would be completely restrained by this new formula for any final offer that is less than 85 percent of the ultimate compensation awarded. To be clear, this bill would not even allow a court to consider new facts, which if known before trial, would have clearly altered the plaintiff’s offer. By removing the court’s discretion, this new determination could lead to patently unfair outcomes.

This bill would not even allow a court to consider the demand made by the defendant property owner. For instance, a property owner could demand 10 times the amount that is ultimately awarded but still receive litigation expenses from the plaintiff if the plaintiff’s offer is 84 percent of the final award. This would create a perverse incentive for defendants to artificially drive up their demands.

The California Supreme Court specifically addressed the practice by some courts of relying on just such a mathematical formula without appreciating the factual circumstances of the case:

We need say little more about this issue other than to note our disapproval of any pronouncement purporting to find unreasonableness as a matter of law based purely on mathematical disparity, and to commend the lower courts in every case to consider not only the numerical figures, but also the good faith, care and accuracy in how the amount of the offer and the amount of the demand, respectively, were determined.

(LA Metro at 720-721, internal quotations and citations omitted.)

This bill would mandate, in many cases, precisely the determination that the California Supreme Court has disapproved and require courts to ignore “the good faith, care and accuracy in how the amount of the offer and the amount of the demand, respectively, were determined.”

It should also be noted that underlying a public entity’s determination of the fair market value for property necessary for a public use is an inherent obligation to the public, in addition to the obligation to the property owner. “One general principle relevant to this determination is that taxpayers should not be required to pay more than reasonably necessary for public works projects. Stated another way, compensation for taking or damage to property must be just to the public as well as to the landowner.” (LA Metro at 716.) This bill could potentially penalize public agencies for being prudent with taxpayer dollars, and could force agencies to artificially increase their offers of compensation.

3. The evidence provided by the author fails to justify the bill’s drastic change to existing law

The author has provided over a dozen examples, involving mainly court decisions in eminent domain proceedings, of unreasonable government offers in order to support the need for this legislation. However, a review of this “supporting” evidence fails to reveal the need for a change in existing law. In fact, there is no evidence that any of the defendants in these cases failed to receive litigation expenses. To the contrary, the courts actually awarded defendants litigation expenses in many of the cases, pursuant to Section 1250.410. This is precisely how the law should work.

The author cites to City and County of San Francisco v. PCF Acquisitionco, LLC (2015) 237 Cal.App.4th 90, 98. The court found the city’s offer unreasonable and awarded the defendant litigation expenses pursuant to Section 1250.410. The law worked as it should.

The author points to one case involving Tri-City Medical Center. In that case, the plaintiff made a ludicrously low offer to a property owner. However, according to the article cited, the defendant was awarded its legal fees of approximately $2.2 million. The law worked as it should. (Paul Sisson, Tri-City says it wants to abandon eminent domain fight (Dec. 19, 2016) San Diego Union Tribune <http://www.sandiegounion tribune.com/news/health/sd-me-tricity-domain-20161216-story.html> [as of May 2, 2018].)

In San Diego Gas & Electric Co. v. Schmidt (2014) 228 Cal.App.4th 1280, 1308-1309, the court found San Diego Gas & Electric’s offer for property was unreasonable and the defendant’s offer reasonable; it awarded the defendant litigation expenses pursuant to Section 1250.410. The law worked as it should.

The author cites Sacramento Area Flood Control Agency v. Souza. In that case, the Sacramento County Superior Court awarded the defendant litigation expenses pursuant to Section 1250.410. The award was upheld on appeal. (Sacramento Area Flood Control Agency v. Souza (2017) No. C074052 ___Cal.App.5th___ [2017 Cal. App. Unpub. LEXIS 6117, at *2].) The law worked as it should.

In Orange County Flood Control Dist. v. Altfillisch Constr. Co. (2012) 2012 Cal. Super. LEXIS 2031, *9, the parties engaged in mediation after a jury verdict and came to a settlement agreement that included litigation expenses. The law worked as it should.

The author also cites to Tracy Joint Unified School Dist. v. Pombo (2010) 189 Cal.App.4th 889, 904. The court awarded the defendants their reasonable litigation expenses pursuant to section 1250.410. The law worked as it should.^[1]

Not only do these cases not support the drastic change in law envisioned by this bill, but rather, they show the current law being executed exactly as it should. Applying the existing provisions of Section 1250.410, the courts ultimately awarded defendants their litigation expenses where the plaintiffs’ offers were unreasonable. Additionally, the detailed opinions show how the courts utilized a number of factors to arrive at their ultimate determinations, considering the evolution of the offers and demands, the additional evidence provided at trial, and a host of other factors. This bill would restrict the court from considering any of these factors and instead replace the measured application of a court’s discretion with a rigid mathematical formula where an offer of compensation falls below 85 percent of the compensation ultimately awarded.

There is arguably no evidence that existing law is failing to properly award defendants their litigation expenses when they are provided unreasonable offers for their property by public entities. In addition, this bill would remove the scalpel from the court’s hands and replace it with an arbitrary measuring stick that fails to appreciate any of the nuances of the particular factual circumstances in a given case.

Support: Fieldstead and Company; Howard Jarvis Taxpayers Association; Pacific Legal Foundation

Opposition: None Known

HISTORY

Source: Conference of California Bar Associations

Related Pending Legislation: None Known

Prior Legislation: AB 408 (Chen, 2017) would have provided that if an offer of the plaintiff is lower than 90 percent of the compensation awarded, the defendant must be awarded their litigation expenses. The court would have retained discretion to determine whether an award of litigation expenses was warranted where the plaintiff’s offer is between 90 and 100 percent of the compensation awarded. This bill died in the Assembly Judiciary Committee.

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1. The author also cites to a number of other cases, however, it was not clear whether litigation expenses were provided. A link to an article discussing a case involving a rancher in Marin County was provided. The defendant’s demand was almost twice as high as the ultimate award. The article does not mention whether litigation expenses were awarded. Similarly, there is a reference to a case brought against the Veterans of Foreign Wars by the Los Angeles Metropolitan Authority, but there is no information about whether litigation expenses were awarded. There are other citations to cases based in Monrovia and Sonoma. However, the parties settled before the cases advanced in litigation. The article cited to for the latter case specifically indicates that the defendant and the defendant’s attorney were “pleased” with the result. There are also references to cases in the Superior Courts of San Luis Obispo County, Solano County, Los Angeles County, and San Diego County. However, there is no indication of whether litigation expenses were awarded in those cases, and there is no link or documents provided. There is also a reference to a case, City and County of San Francisco v. Convenience Retailers, however the citation is for a different case. The author also points to Turnacliff v. Westly (9th Cir. 2008) 546 F.3d 1113. However, that case is not relevant here. ↑