JONES v. PEOPLE DEPARTMENT OF TRANSPORTATION

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Court of Appeal, Third District, California.

Arthur E. JONES et al., Plaintiffs and Respondents, v. The PEOPLE of the State of California, acting By and Through the DEPARTMENT OF TRANSPORTATION, Defendant and Appellant.

Civ. 15270.

Decided: December 30, 1976

Desmond, Miller & Desmond, Sacramento, for plaintiffs-respondents. Harry Fenton, Chief Counsel, Richard B. Williams, Dept. of Transp., Sacramento, for defendant-appellant.

The State Department of Transportation appeals from a judgment awarding plaintiffs $75,000 damages for inverse condemnation plus $25,000 attorneys fees and costs. We reverse.

On May 10, 1963, plaintiffs bought 9 1/2 acres of land fronting on Fair Oaks Boulevard near Bannister Avenue in Sacramento County for $55,500 (just under $5,900 per acre). Except for two old houses, it was essentially unimproved. Plaintiffs had recently moved to Sacramento from Southern California, where Mrs. Jones had worked as a real estate salesperson for about five years. Using proceeds from the sale of real estate in Southern California they paid $17,000 down and obtained financing for the remainder of the purchase price. There were a number of new subdivisions in the general area and the plaintiffs planned to resell the property in a year or two for development.

At the time of purchase, it was common knowledge among real estate brokers that a freeway was planned for the area, but no routes had been proposed. In response to their inquiries, their broker assured plaintiffs that the future freeway would not affect the property. In the late fall of 1963, however, plaintiffs saw a newspaper item giving notice of public hearings on alternate routes for the freeway, one of which did affect plaintiffs' property. On May 20, 1964, the State Highway Commission formally adopted a route (pursuant to Sts. & Hy.Code, § 75, subd. (a)), which crossed plaintiffs' land but plaintiffs were told that it would be about eight years before the State would begin acquiring property.

Unexpectedly, Mr. Jones' employer transferred him back to Southern California in mid-1964, so the property was listed for sale at a price of $99,500. It was difficult to keep tenants in the two old houses, and the plaintiffs did not think they could properly manage the property from Southern California.

On August 10, 1964, the State and County of Sacramento executed a ‘Freeway Agreement’ (pursuant to Sts. & Hy.Code, § 100.2), providing for an overpass over Fair Oaks Boulevard and the closing of Bannister Avenue. No construction, closing of existing roads, or any other activity has ever been performed pursuant to this agreement.

Plaintiffs were unable to find a buyer. In an effort to induce the State to purchase the property in advance of its normal acquisition schedule, plaintiffs submitted a proposed subdivision map to the county. After initial tentative approval, the county in 1967 disapproved the subdivision because its proposed street connected with Fair Oaks Boulevard, thus conflicting with the county's freeway agreement with the State. The proposed freeway would take the northern two acres of the property, cutting off all access to Fair Oaks Boulevard. Plaintiffs' only other access would then be over Cheryl Lane, a private road in which they own an undivided one-third interest and which connects with Bannister Avenue 190 feet from the southeasterly edge of the property. In April 1969, however, the freeway design was amended to reroute Bannister Avenue so as to make it a frontage road; this would have provided access to the north end of plaintiffs' property.

In June 1969, under the State's hardship acquisition program,1 plaintiffs requested an offer and the State offered to purchase the portion of plaintiffs' property affected by the freeway (2.438 acres) for $15,847 ($6,500 per acre). The offer was rejected as too low. Despite the new proposed frontage road, plaintiffs were still unable to sell the property for the price they desired. One reason urged by them is that no one then knew when the frontage road would be built; until this was done, plaintiffs felt they could not sell the northern two acres to the State, because this would eliminate the existing direct access to Fair Oaks Boulevard.

Later in 1969, Mr. Jones was transferred to England, where the plaintiffs remained until he retired in 1972. Throughout this period the property remained on the market, and plaintiffs awaited the anticipated condemnation. In December 1972, in an effort to clarify the proposed right-of-way for potential buyers, plaintiffs' broker asked the State to place stakes on the property along the proposed freeway's boundary; this was promptly done.

Although the State acquired numerous properties along the freeway route during the late 60's and early 70's under the hardship acquisition program, the State Highway Commission never at any time passed a resolution authorizing condemnation of plaintiffs' property.2

Plaintiffs consulted counsel. On June 8, 1973, they filed a claim with the State Board of Control, and after denial, filed this action. The case was tried before a jury, which on December 17, 1974, rendered a verdict for plaintiffs in the amount of $175,000. The verdict stated that these damages were for ‘the precondemnation activity of defendant STATE OF CALIFORNIA, dating from May 16, 1973 . . ..’

The court entered a formal judgment on the verdict on December 20, 1974, reducing the amount to $75,000, for ‘Diminution in fair market value’ and adding $25,000 attorneys fees pursuant to Code of Civil Procedure section 1246.3, plus costs and expenses, and interest on the judgment from May 16, 1973 (the date of ‘valuation’).

Seven months after the judgment was entered (July 1975), the State Legislature deleted the proposed freeway from the State highway system. (Stats.1975, ch. 244.) Plaintiffs' land is therefore no longer under threat of condemnation; any diminution in value caused by the proposed freeway no longer exists.

For two reasons the judgment must be reversed.

I

Traditionally and historically, compensation for the taking of property for a public purpose is determined by eminent domain proceedings, in which the condemnor files an action both to obtain the property and to determine its market value for purposes of just compensation. (5 Witkin, Summary of Cal.Law (8th ed. 1974) Constitutional Law, § 557 et seq., p. 3857.) Where damage to private property results from activity of a public agency with power to condemn, the doctrine of inverse condemnation permits the damaged landowner to initiate an action for compensation. (Id., § 579 et seq., p. 3876.) Normally inverse condemnation requires some physical invasion or direct legal restraint by the agency. (4 Nichols, The Law of Eminent Domain (3d ed. rev. 1971) § 12.3151[5], p. 336.) In two leading cases however, our Supreme Court recently addressed inverse condemnation as it relates to precondemnation activity not involving physical invasion or direct legal restraint.

In Klopping v. City of Whittier (1972) 8 Cal.3d 39, 104 Cal.Rptr. 1, 500 P.2d 1345, it was held that while the mere announcement of an intention to condemn property is not in and of itself actionable in inverse condemnation for any loss in market value occasioned by the announcement, unreasonable action by the condemnor in issuing precondemnation statements will bring about that result, even without physical invasion or direct legal restraint. Such unreasonable action was explained to consist of ‘either . . . excessively delaying eminent domain action [following an announcement of intent to condemn] or . . . other oppressive conduct . . ..’ (Id. at p. 52, 104 Cal.Rptr. at p. 11, 500 P.2d at p. 1055.)

In Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 109 Cal.Rptr. 799, 514 P.2d 111, the Supreme Court elaborated upon but refused to extend the operative effect of the Klopping rule. It held that the adoption by a county of a ‘general plan’ (Gov.Code, § 65300 et seq.) for the physical development of property within its boundaries does not give rise to a cause of action in inverse condemnation in favor of property owners whose lands are designated in such a plan for ultimate public acquisition. It further held that the denial of an application for a building permit to construct an apartment complex on affected property grounded in the developer's refusal to dedicate property designated in the plan for a public street also did not give rise to an inverse condemnation action (even though the propriety of such denial may be considered in mandamus proceedings—10 Cal.3d at p. 123, 109 Cal.Rptr. 799, 514 P.2d 111). ‘Neither Klopping nor any other decision of which we are aware holds that the enactment of a general plan for the future development of an area, indicating potential public uses of privately owned land, amounts to inverse condemnation of that land.

‘. . .

‘. . . In order to state a cause of action for inverse condemnation, there must be an invasion or an appropriation of some valuable property right which the landowner possesses and the invasion or appropriation must directly and specially affect the landowner to his injury. [Citation.] The county has not placed any obstacles in the path of plaintiff in the use of its land. Plaintiff has not been refused permission by the county to build on or subdivide its county land, and its posture is no different than that of any other landowner along the streets identified in the plan. Furthermore, the plan is subject to alteration, modification or ultimate abandonment, so that there is no assurance that any public use will eventually be made of plaintiff's property.

‘. . .

‘If a governmental entity and its responsible officials were held subject to a claim for inverse condemnation merely because a parcel of land was designated for potential public use on one of these several authorized plans, the process of community planning would either grind to a halt, or deteriorate to publication of vacuous generalizations regarding the future use of land.’ (Id. at pp. 119–120, 109 Cal.Rptr. at p. 804, 514 P.2d at p. 116.)

As in the Selby case, there has been no compensable injury to plaintiffs' property here. The adoption of the freeway route and the freeway agreement were done under statutory authority and are highly analogous to the adoption of the general plan involved in Selby. Although they necessarily had some impact upon all property within the proposed route, it was not such as to cause an inverse condemnation. No construction or other physical activity was performed thereunder. There was nothing final about the State's freeway action which could not be altered, modified or ultimately abandoned prior to construction, as indeed it was. There was no interference whatever with the plaintiffs' right to use their property, except that Sacramento County (which is in any event not a party to this action) disapproved plaintiffs' proposed subdivision map, something which under Selby could have been tested by mandate proceedings against the county; this was not done. Nor did the State object in any manner to any development or improvement of the property; it placed no obstacles in the path of plaintiffs in their use of the land. In short, the adoption of the freeway route and freeway agreement no more amounted to an inverse condemnation than did the general plan in Selby.

To be sure, there was communication between the plaintiffs and the State and a considerable amount of negotiation. However, the record shows unequivocally that this was initiated by and pursued for the primary benefit of the plaintiffs who were extremely anxious to resell their property and quite naturally to obtain the greatest possible profit in the process. This type of activity does not give rise to Klopping dsmages.

In summary, we discern no such unreasonable delay between an announcement of intention to condemn and eminent domain action as would give rise to inverse condemnation damages under Klopping. We detect no unreasonable governmental action. We also note the total absence of any announcement of intention to condemn, a prerequisite to Klopping damages. The closet the facts of this case bring us to such an announcement is an indication in 1964 that the State would begin to acquire property approximately eight years later, in 1972; it is undisputed by plaintiffs that this is not such an announcement as would trigger Klopping damages. Accordingly we conclude that this case is governed by the Selby decision and that plaintiffs are not entitled to inverse condemnation damages.

Our decision is confirmed by the fact that in both Klopping (8 Cal.3d at pp. 52–53, 104 Cal.Rptr. 1, 500 P.2d 1345) and selby (10 Cal.3d at p. 120, 109 Cal.Rptr. 799, 514 P.2d 111), the Supreme Court approved the holding in Hilltop Properties v. State of California (1965) 233 Cal.App.2d 349, 43 Cal.Rptr. 605. There the State specifically asked the plaintiff to exclude a strip of land from its subdivision development because the State would ultimately acquire it for highway use. Plaintiff complied. When the subdivision was completed and the State later refused to take the subject property, the land was left worthless. The Court of Appeal held that no cause of action in inverse condemnation was stated by the above facts (although plaintiff could recover on a promissory estoppel theory). It appears to us that the Hilltop holding, having twice received the blessing of the Supreme Court, adds further persuasiveness to the result we reach.

Our holding is also consistent with Smith v. State of California (1975) 50 Cal.App.3d 529, 123 Cal.Rptr. 745, which held that the adoption of a proposed freeway route, along with the publication of plans and designs therefor and other attendant public announcements, does not give rise to a cause of action in inverse condemnation. We hold with the Smith court that proposed freeway proceedings, at least to the extent that they were conducted in this case, are not significantly different for purposes of inverse condemnation from a county's general plan for future development.

II

Even if the State had announced an intention to condemn and had then engaged in unreasonable conduct so as to give rise to a Klopping inverse condemnation, this case would still require reversal for retrial because the trial court applied an incorrect measure or theory of damages.

We note that the Klooping opinion stresses and proceeds upon the premise that the valuation date remains the statutory date fixed by Code of Civil Procedure section 1249 (the date summons in the condemnation action is issued); it merely adds that after announcement of the intention to condemn,, if there is unreasonable delay of eminent domain action or other oppressive conduct, any subsequent causally related dimintion in value will be disregarded. (Klopping, 8 Cal.3d at p. 52, 104 Cal.Rptr. 1, 500 P.2d 1345.) The court also held that Klopping type damages are to be claimed and recovered as a part of the eminent domain award (Klopping at p. 58, 104 Cal.Rptr. 1, 500 P.2d 1345), thus necessarily presupposing an actual ultimate condemnation. Finally, although the Klopping court spoke in terms of reduced market value, upon careful analysis it is seen that what it truly contemplated was lost rental income, which in turn has an effect upon market valuation. At 8 Cal.3d at page 53, 104 Cal.Rptr. at page 12, 500 P.2d at page 1356, the court makes clear this intention as follows: ‘It has long been established that rent is an appropriate criterion for measuring fair market value. (4 Nichols, supra, §§ 12.312, 12.3122.) ‘[I]f property is rented for the use to which it is best adapted, the actual rental reserved, capitalized at the rate which local custom adopts for the purpose, forms one of the best tests of value . . .’ (4 Nichols, supra, § 12.3122, at p. 169.) On the date on which an announcement of futurn intent to condemn is made, the market value may properly be measured by the anticipated rental income to be received throughout the lifetime of the property. If as a result of precondemnation statements rental income is lost, the anticipated rental income would be diminished and a decline in the fair market value would follow. While we reiterate that the valuation date set statutorily at the issuance of the summons remains intact, if the steps taken toward condemnation are to be disregarded when the condemner acts unreasonably,the condemnee must be compensated for loss of rental income attributable to such precondemnation publicity. Rental losses occasioned by a general decline in the property value or by a natural disaster occurring prior to the date of taking must, however, be borne by the property owner.' (Emphasis added.)

What then occurs when there is lost rental income but no actual taking of the property? Certainly such lost income may still be recovered, but a ‘valuation date’ in terms of market value of the real estate is now meaningless. Given a Klopping type inverse condemnation, followed by an actual taking of the real estate, we concern ourselves with two dates, (1) the statutory valuation date (the date summons is issued) as of which the fact finder determines a figure representing market value, and (2) the earlier date of excessive delay or unreasonable conduct which measures and adds to the first figure the amount of recoverable lost market value, or more appropriately and correctly, the interim lost rental. But given a Klopping damage without a subsequent take, only the second (and earlier in time) valuation date is meaningful, because it commences the accrual of the lost rental claim, the only claim the landowner has. The termination date of such claim is not at all related to any market valuation date, but simply to the date when such lost rental income ends, whenever it might be. (See Stone v. City of Los Angeles (1975) 51 Cal.App.3d 987, 997, 124 Cal.Rptr. 822.)

Treated in terms of lost rental income, Klopping damages cause no confusion and no insurmountable ascertainment problems. Treated in terms of diminution in market value however, until such diminution has been realized in some way, Klopping damages would be too contingent and speculative to be recoverable. This is dramatically illustrated by the instant case, for we now know that the abandonment of the freeway project has restored the market value to normal; thus any assumption at the time of trial that any market value diminution was permanent was fallacious.3 While it would be equitable to award interevening lost rental income (assuming a true Klopping situation), it would be highly inequitable to award a supposed literal loss of market value which does not truly exist.4 A Klopping market value diminution, in order to be recovered as such, must be realized. Such realization takes place either by sale of the property, by its loss through foreclosure or other means (as happened to appellant Sarff in the Klopping case), or by ultimate condemnation (as happened to appellant Klopping in the Klopping case).

Therefore, when the trial court here fixed a market valuation date for the jury of May 16, 1973, a time when the plaintiffs still owned the property and were not in litigation over its eminent domain acquisition, the court committed error. It gave the jury a wholly unworkable method of evaluating the Klopping damages, assuming that such damages could properly be found at all.

The judgment is reversed, with directions to the trial court to enter judgment for defendants.

I concur in reversal of the judgment but dissent from that portion of the order which would deny plaintiffs a new trial.

The majority opinion errs by holding, as a matter of law, that the State of California did not invade a valuable property right of plaintiffs. In Klopping v. City of Whittier, 8 Cal.3d 39, 51–52, 104 Cal.Rptr. 1, 500 P.2d 1345, the State Supreme Court held that when a condemner acts unreasonably in issuing precondemnation statements, either by excessively delaying eminent domain action or by other oppressive conduct, the owner is entitled to recover inverse condemnation damages. In Selby Realty v. City of San Buenaventure, 10 Cal.3d 110, 109 Cal.Rptr. 799, 514 P.2d 111, the court held that a political subdivision's adoption of a general plan which might ultimately affect private property is not the equivalent of a taking or damaging for public use; rather, in order to create a claim for inverse condemnation, ‘there must be an invasion or an appropriation of some valuable property right which the landowner possesses and the invasion or appropriation must directly and specially affect the landowner to his injury.’ (Id. at pp. 119–120, 109 Cal.Rptr. at p. 805, 514 P.2d at p. 117.)

Selby Realty in no way overruled, limited or qualified Klopping. Rather, it recognized a rule alternative to Klopping. Faced with governmental action which might fall within one rule or the other, a court should decide which alternative applies. The majority err by lodging this case under the ‘general plan’ rule of the Selby Realty case.

The undisputed facts place this case within the Klopping and not the Selby Realty alternative. A free market in real estate rises or falls in response to a complex array of sociological and economic factors, national, regional and local. The proposed freeway traversed the heart of the Carmichael area of Sacramento County. At the inception of the significant events, this area had been the scene of a fluid free market in commercial and domestic real estate. In 1963 the State Highway Commission smashed into this free market. It announced a freeway route through the heart of the area eight years in advance of proposed acquisitions. Short of the onset of a new Ice Age, one could hardly imagine a more clumsy, more insensitive obstruction of the free market. The Highway Commission's action created an economic no-man's land. It was a gross governmental interference with the property interests of the private citizens who lived or had invested savings in the path of the proposed freeway.

For 12 years the State of California kept this free market in manacles. One speculates how many dozen or hundreds of helpless property owners suffered from the State's callousness. In 1975, with the apparent agreement of the State Highway Commission, the Legislature took the proposed freeway out of the state highway system. Blinking in the sunlight after 12 years of economic captivity, the owners of homes and marketable land once more gained freedom to exercise the economic choices which the state had denied them for 12 years.

Inverse condemnation doctrines are verbalized judicial attempts to balance governmental and private interests. The state should have opportunity for advance announcements and advance consultation. When, as here, it commences its ‘consultation’ by creating eight years or more of economic havoc, it ought to pay. I am unable to view the state's harsh and injurious action as the equivalent of the innocuous, tentative ‘general plan’ which confronted the court in Selby Realty. As a matter of law, this case should be lodged within the Klopping concept. (Cf. Smith v. State of California, 50 Cal.App.3d 529, 123 Cal.Rptr. 745, hg. den.)

Among the rights inhering in land ownership is the right to offer it for sale on the free market. (Civ.Code, § 671.) Abstaining from physical interference with plaintiffs' use of their 9 1/2-acre parcel, the state thrust the land into a 12-year economic limbo, isolating it from the free market. The state's conduct directly, specially and injuriously impaired plaintiffs' right to sell or rent their land. (Selby Realty Co. v. City of San Buenaventura, 10 Cal.3d at pp. 119–120, 109 Cal.Rptr. 799, 514 P.2d 111.)

The majority would permit the state to walk away from the economic havoc of 12 years. The mild ‘general plan’ concept evolved in Selby Realty is here utilized to emasculate the constitutional demand for just compensation. To say that property may not be ‘damaged’ by 12 years of state-imposed economic idleness is to deny the facts of life under cover of legalistic verbiage.

The majority go farther. They essay the decision of jury questions at the appellate level. They ‘discern no . . . unreasonable delay’ and ‘detect no unreasonable governmental action.’ Identification and differentiation between questions of law and questions of fact is one of the classic problems of judicial administration. (See Weiner, The Civil Jury Trial and the Law-Fact Distinction, 54 Cal.L.Rev. 1867.) The majority fail to distinguish between the fact-finding function of the jury and the law-deciding function of the court. The law allocates to the jury the responsibility for deciding whether questioned conduct was reasonable under all the circumstances. (Mosley v. Arden Farms Co., 26 Cal.2d 213, 217, 223, 157 P.2d 372; Weiner, op. cit., 54 Cal.L.Rev. at pp. 1878–1883.) In holding that the actions of the State Highway Commission and the Department of Transportation were reasonable, the majority have invaded the jury's domain. In denying a retrial, the majority deprive plaintiffs of their right to a jury determination of the ‘reasonableness' issue.

I am in general agreement with reversal on the damage issue. The trial court erred by giving the jury a verdict form permitting an award of damages for ‘the precondemnation activity of defendant STATE OF CALIFORNIA, dating from May 16, 1973 . . ..’ The verdict form was prejudicially erroneous. It diverted the jurors from the market value standard of just compensation and invited them to view the state as a tortfeasor. Their verdict represented a wholesome moral reaction to the state's conduct rather than a law-guided appraisal of loss.

The trial court's error was not remedied when the judge, on a motion for new trial, reduced the award to $75,000. The misconceived verdict form had prevented any jury award of just compensation. In reducing the damages the court was not exercising its power to disagree with the jury's award of just compensation; rather, the court was attempting to fix the award as an original matter. The state was entitled to have the jury, not the trial judge, fix the compensation.

Reversal for a new trial would serve the ends of justice. The constitutional guaranty of just compensation may require the selection of a valuation date other than that designated by section 1249, Code of Civil Procedure. (Klopping v. City of Whittier, supra, 8 Cal.3d at p. 44, 104 Cal.Rptr. 1, 500 P.2d 1345.) In this case no better or more logical time may be selected than the date of July 1975, when the state abandoned the freeway. At that time the property returned to the free market. Possibly the property then had a market value exceeding any price the owners could have secured during their 12 years of economic captivity. If so, they profited and did not lose by the state's conduct. If, on the other hand, they suffered a loss, they should have an opportunity to present their claim to another jury.

FOOTNOTES

1.  This program was designed by the Department of Transportation (formerly Division of Highways) for the purpose of prematurely acquiring highway properties not yet neeced, at the request of the owners and in order to avoid or minimize hardship to them.

2.  On May 22, 1968, the Commission authorized a condemnation action against a group of approximately 10 unimproved residential lots in a nearby subdivision along the proposed freeway route; the action was subsequently filed and proceeded to judgment on December 3, 1970. The record contains no clear indication of the reason for this acquisition, although it can be inferred that one or more residential buildings were about to be constructed on the lots when the action was filed.

3.  The confusion which the ‘valuation’ date of May 16, 1973 generated is manifested by the jury's special finding that the damages it awarded were for ‘the precondemnation activity of defendant State of California, dating from May 16, 1973’ (emphasis added). If we read this to be (as it purports to be) the date of inception of the Klopping damage, what date did the jury have for purposes of comparison, so that it could measure the amount of lost rental (or if one pleases, the amount of diminished market value)?

4.  Even though the abandonment took place after the trial, it is both proper and just that we consider it. (Cf. Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 125, 109 Cal.Rptr. 799, 514 P.2d 111.)

PARAS, Associate Justice.

REGAN, J., concurs.Rehearing denied; FRIEDMAN, Acting P. J., dissenting.