State Justices Ease Costs of Eminent Domain

The California Supreme Court made it cheaper Monday for government to condemn private property for transit, freeways, schools and other public works.

The 5-2 ruling, a victory for the Los Angeles Metropolitan Transportation Authority, is a boon to governments throughout California that must acquire portions of private properties for public projects.

The decision changes decades of law and puts California at odds with how most other states acquire private property.

“Potentially it could be billions of dollars in savings to the government,” said Bruce Dannemeyer, a lawyer who represented a property owner against the MTA, “or billions of dollars in losses to property owners who don’t receive compensation.”

When a government agency condemns a part of a property, the owner is entitled not only to the market value of that portion but also to compensation for any ill effects the project might have on the remainder of the property. This cost sometimes exceeds the value of the property that was condemned.

Previously, the costs of the damage to the remainder of the property could be offset only by benefits that were specific to the property owner.

But the Supreme Court decision changes those rules. Government can now try to limit payments to property owners by deducting for the general benefits a project would bring to a neighborhood. These general benefits could include the increased convenience of having a nearby rail line or the added customers that a new stadium would attract to a commercial area.

“Taxpayers should not be required to pay more than reasonably necessary for public works projects,” Justice Kathryn Mickle Werdegar wrote for the majority.

Justices Joyce L. Kennard and Marvin R. Baxter dissented, arguing that it was unfair to make a single property owner bear all the costs when the benefits were enjoyed by many.

“When a parcel of property is severed by the government,” Kennard wrote, “any damages to the remainder are part of the injury the landowner suffers. To refuse to compensate the landowner for those damages . . . unfairly forces the landowner to pay for benefits that others receive for free.”

The court established the new rule in a dispute between the MTA and Continental Development Corp., an El Segundo commercial landowner. The MTA acquired property owned by Continental in El Segundo to build a portion of an elevated light-rail line known as the Green Line.

The MTA valued the property at $99,532. Continental said it was worth $141,666. A jury awarded Continental $106,356.

The dispute before the state high court was over the amount the MTA had to pay Continental for damages to the adjoining property owned by Continental. This portion was not condemned but would be affected by the rail line.

Continental planned and has since built a four-story office building on the site. The owner estimated that the rail project would cost $1 million in lost value because the rail line would block views from office windows, and an additional $400,000 in expenses for soundproofing the building.

The MTA countered that rents did not drop in neighborhoods with similar rail systems in the San Francisco Bay Area and Washington. Indeed, the MTA argued that Continental’s property values would rise because employees would want to work near a rail station.

Under the Supreme Court’s decision, a jury will now be able to compare damages to Continental claimed by the company to the benefits of the rail line claimed by the MTA. If the jury determines that the benefits exceed the harm, the landowner could receive no compensation other than the market value of the property that was condemned.

Dannemeyer, the lawyer for Continental, said the MTA’s Green Line should not be compared to the heavily traveled lines on subways in the Bay Area and Washington. The Green Line, dubbed by critics the “train to nowhere” because it does not run between major employment centers, goes between Redondo Beach and Norwalk but stops a few miles short of Los Angeles International Airport. An MTA spokesman said the train carries about 19,000 passengers a day.

Without the elevated rail line, offices in Continental’s development would have enjoyed views “on a clear day” of downtown Los Angeles, Dannemeyer said. “Your view now is this elevated rail line with trains going by,” the lawyer said. “That prevented us from getting the tenant who was willing to pay for the view.”

Gideon Kanner, a professor at Loyola School of Law who specializes in eminent domain, called the ruling “a lousy decision” that could be abused when local governments take private property for redevelopment projects.

If the government can now deduct general benefits from the amount it must pay a property owner for losses, that owner also should be allowed more money for general damages, such as pollution or congestion, Kanner said.

“It will be fascinating if they meant to be evenhanded,” the law professor said skeptically.

But James C. Powers, a lawyer for the MTA, said the court has now made the law clear and fair. Property owners receive benefits when a new freeway offramp makes freeway access easier or a park improves a neighborhood, he said. Those benefits should be considered against the losses the owners may claim, he said.

“If on balance they have a property that is worth more, why should they get paid?” Powers asked.

Russell Snyder, a Caltrans spokesman, said the ruling will save the state transportation agency money. Last year, Caltrans spent $54 million acquiring 2,600 parcels for transportation projects, half of them partial land acquisitions that would have been affected by the Supreme Court ruling, Snyder said.

The agency has budgeted $170 million for land acquisition this year, he said.

To build 9.5 miles along the Santa Ana Freeway in Orange County, Caltrans spent $500 million to acquire private property, according to Snyder.

MTA spokesman Jim Smart praised the ruling as a “significant victory” for government. The MTA has no immediate plans to make many more similar acquisitions, but he said the ruling reflects “the definite benefit” rail systems have on private property owners, particularly if they are near a station.

“A little-known case is going to have a major impact on the costs of government services,” Smart said.