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May 2012

Landowners Beware: Public Agencies May Mislead With Impunity

Imagine that you own a furniture manufacturing business in the City of Huntington Beach, California and the city, on numerous occasions, publicly declares its intention to purchase your property for the construction of a new city hall. You meet with the mayor several times who tells you that your business is going to be purchased and, if necessary, condemned. The City has your property appraised, tells you to get your own appraisal, erects large signs near your business announcing the pending city project and analyzes relocation expenses. 

During this time, your business suffers. You lose furniture manufacturing orders because you do not know how long you can remain at the property; and you are unable to lease the property to third parties due to the same uncertainty.

The City ultimately decides not to acquire your property. Your business has failed and you have been damaged. Is there any judicial remedy available for you to obtain just compensation? 

This article discusses the law that you will both have available and have to overcome.

In 1972, the California Supreme Court decided the landmark decision of Klopping v. City of Whittier 1. In brief, Mr. Klopping, the owner of property that the city sought to condemn, brought an action for pre-condemnation damages. The city had initiated condemnation proceedings to acquire Klopping's property precipitating a decline in both business and the property's value. The city then vacated its condemnation efforts but reiterated its intention to acquire Klopping's property.

Mr. Klopping thereupon commenced a lawsuit in "inverse condemnation" – a legal theory which gives property owners a right to constitutionally-mandated just compensation where an owner's property has been "taken or damaged" by a public agency's action. ("Inverse condemnation" is the mirror image of "direct condemnation," where a public agency brings a lawsuit to condemn or acquire private property. Inverse condemnation is available to require public agencies to pay just compensation where there is a "taking" by physical occupation, by confiscatory regulations or by other unreasonable conduct.) 

The Klopping court held that Mr. Klopping was entitled to relief where:(1) the public authority acted improperly either by unreasonably delaying eminent domain action following an announcement of intent to condemn or by other unreasonable conduct prior to condemnation; and (2) as a result of such action the property in question suffered a diminution in market value.

(Klopping v. City of Whittier 2)

In Klopping, the city unreasonably delayed commencing an "eminent domain action following an announcement of an intent to condemn?" Relief under this language is conditioned upon the agency having adopted a "resolution of necessity."

The City of Huntington Beach, however, did not adopt such a resolution. Thus, relief was not available under the first test in KloppingKlopping, however, allows relief in a second circumstance – where there is "other unreasonable conduct?."

Would you, as owner of the Huntington Beach manufacturing business described above, be entitled to relief under the second Klopping test? The California Court of Appeal in Joffe v. Huntington Beach 3 said "no."

Joffe found that the City did nothing more than engage in "planning." Thus, "precondemnation announcements alone should not subject public agencies to liability, and landowners must bear some incidental loss resulting from such general planning announcements. Thus, liability will attach only when the public entity's conduct has "passed from the planning stage into the acquiring stage [?] Plans for public projects can change or be abandoned; Klopping was never intended to inhibit long-range planning or to require that public entities acquire property for proposed public improvements before it may be needed."

Here, said the Joffe court, the property—part of a planned acquisition of over 200 parcels consisting of 80 acres—was not specifically and directly interfered with. The signs, public statements and grant application were equally applicable to all 200 parcels and were nothing more than "planning."  The mayor's statements were nothing more than unofficial statements and not an "act toward acquisition." 

So what then entitles a property owner to relief? City denial of permits intended to limit a property's value, announcements of an intent to acquire for the purpose of limiting the value of property, and other such bad faith conduct. 

There are lessons for property owners who are told by public agencies that their property is to be acquired. Don't tell your customers anything. Don't buy alternative property assuming that you have to move your business. [See Barthelemy v. Orange County Flood Control District 4], where the owner of a dairy, who was told his property was to be acquired for a floodway, moved his business only to find the project abandoned, and was denied relief.] Finally, understand that just because an agency publicly states its intention to acquire property does not commit it to do so or require compensation for any loss that the owner may suffer as a result of relying on such public statement. 

1 Klopping v. City of Whittier (1972) 8 Cal.3d 30.
2 Klopping v. City of Whittier (1972) 8 Cal.3d 39, 51-52.
3 Joffe v. Huntington Beach (2011) 201 Cal.App.4th 392.
4 Barthelemy v. Orange County Flood Control District (1988) 65 Cal.App.4th 558.

Charles V. Berwanger