A Public Entity Risks Incurring Inverse Condemnation Taking Damages If It Prevents Development Of Property Designated For A Public Use At Some Unknown Future Date

May 21, 2015 | Bulletin No. 1257683.1

In Jefferson Street Ventures, LLC v. City of Indio (April 21, 2015, Civil No. G049899) ___ Cal.App.4th ___), the Court of Appeal addressed whether a city can deny development of property it anticipates needing for a public project at some unknown future date.  In that case, the City of Indio ("City") denied an owner permission to develop property it identified as potentially required for an interchange.  At the time, the City was not in a position to acquire the property, and construction of the interchange would not occur for several years.  Although undeveloped property would presumably cost less for the City to acquire, the Court rejected the City's cost saving rationale.  It held the City liable for damages since the denial of development constituted an invalid taking of the private property.

Background

Jefferson Street Ventures ("Jefferson") owned approximately 27 acres of undeveloped property next to a freeway in the City, and it submitted an application to the City to develop the property as a shopping center.  The City had plans to reconstruct an adjacent freeway interchange, and this project would require a portion of Jefferson's property.  However, at the time of Jefferson's application, the City was not in a position to acquire the property "due to funding constraints imposed by the byzantine planning and review process for the interchange that involved various local, state, and federal agencies." 

Nonetheless, the City was concerned that allowing development of the property designated for the interchange would force the City to incur additional costs, such as building demolition and tenant relocation costs, when, or if, the property was later acquired for the interchange.  Consequently, the City approved development of approximately 17 acres, but denied development of the 11 acres designated for the future interchange project. 

Jefferson challenged the denial of its application for development of the entire site by filing a petition for writ of mandate and a complaint for taking damages based upon inverse condemnation.  The trial court denied relief.

Court's Decision

Upon review, the Court of Appeal found that the City's actions resulted in an invalid taking of Jefferson's property.  Noting that Jefferson was first required to file a writ of mandate before seeking inverse condemnation damages, the Court focused the writ petition.  The Court agreed with Jefferson's argument that the conditions imposed on the development plan prohibiting indefinitely the development of 11 of the 27 acres to preserve that property for future interchange development were invalid.  The Court noted that Jefferson's proposed development was consistent with the applicable zoning, specific plan and general plan, and nothing suggested the project would cause or contribute to the need for the new interchange. 

The City's desire to avoid additional acquisition costs when, or if, the project proceeded was not a sufficient reason to deny Jefferson's proposed development. The Court explained that the City cannot impose conditions to "bank" otherwise developable property "so that it could potentially be condemned at some unknown time in the future [] in an undeveloped (and, consequently, less costly) condition."  The fact that the City still allowed Jefferson to develop a portion of the property did not negate the taking.

After the City's denial, Riverside County ("County") became the lead agency for the interchange project, and the County ultimately filed a condemnation action seeking the acquire Jefferson's property.  This pending condemnation action did not moot Jefferson's action since the condemnation action was still pending, and the trial court had not yet issued any final judgment.  The Court remanded Jefferson's action to the trial court to determine the compensation owed to Jefferson, and directed the trial court to consider whether the County's condemnation action should be consolidated with Jefferson's action.

What This Means To You

This opinion shows the limitations a public entity faces when determining whether to approve development of property which might, in the future, be required for a public project.  While denying development might result in reduced future acquisition costs and help insure the property remains available for the public project, it could also expose the entity to liability for a taking of the property.  This liability would occur regardless of whether the property was ultimately needed in the future.  Additionally, a successful property owner in an inverse condemnation action is entitled to recover its costs and attorney fees from the public entity which could result in a significant additional expense for the entity.

Questions

If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult:

William Chisum or Jennifer Scott | 916.321.4500