One of the largest takings awards in California history has been thrown out by a state appellate court, which ruled that preliminary airport planning and traffic circulation changes by the City of San Diego did not amount to a taking of a developer's property.
In 2001, a jury awarded the developer of a business park just north of the Mexico border $94.5 million for inverse condemnation and for the city's violation of a 1986 development agreement. A judge ordered a new trial on the development agreement contentions, but the award of $65.3 million — plus $26.4 million in pre-judgment interest — to developer Roque de la Fuente II for inverse condemnation stood. By the time of the Fourth District's decision, interest had boosted the award to more than $120 million.
The jury awarded damages after San Diego County Superior Court Judge Vincent DiFiglia accepted de la Fuente's argument that planning for an international airport in the area of the business park, and the diversion of truck traffic to a new border crossing amounted to a taking of private property because they impacted development of the business park.
However, the Fourth District Court of Appeal ruled that because airport planning did not affect de la Fuente more than any other property owner, there was no taking. The court also found that, although truck traffic was thick for a period, there was always road access to the park and, therefore, there was no taking. The Fourth District also upheld Orange County Superior Court Judge Raymond Ikola's decision granting the city a new trial on the alleged breach of a development agreement.
Vincent Bartolotta Jr., de la Fuente's attorney, said he would ask the state Supreme Court to take the case. The Fourth District's decision "undermines the viability of inverse condemnation in California," he said.
The de la Fuente family and local government officials have battled for years over real estate development in the Otay Mesa section of San Diego, where Roque de la Fuente Sr., his wife and children have owned thousands of acres. (The senior de la Fuente died in 2002. His son, Roque II, runs the family development company.) In 1986, one year after the city annexed the territory, the city entered into a development agreement with the family's 260-acre Border Business Park, Inc. Under the agreement, the developer agreed to pay certain fees and bear the cost of various public improvements. In exchange, the city agreed not to hold the developer to certain fee and regulation revisions. The city also agreed to finance improvements with municipal bonds that the developer would pay off.
However, there had been talk by the city and the San Diego Association of Governments (SANDAG) of converting the small Brown Field airport at Otay Mesa into an international airport since at least 1981. In 1989, SANDAG identified Otay Mesa and Miramar Marine Corps Air Station as potential new airport sites, and in 1991 the city named Otay Mesa the preferred option. The city's plan called for a "twin port" that used both Brown Field north of the border and Rodriquez Field in Tijuana. In 1993, however, the city abandoned the plan because Mexico was not interested.
That same year, the federal government closed the San Ysidro border crossing to commercial truck traffic. Instead, trucks had to use a new border crossing in Otay Mesa. At first, truck traffic bypassed the business park. But two years later, the city re-routed traffic for about nine months in a way that inundated the business park with border-crossing trucks.
Meanwhile, development at the business park had slowed, and de la Fuente missed some bond debt payments. The city foreclosed on 35 parcels, although de le Fuente eventually regained most of the property.
De la Fuente sued the city in 1995, alleging the city had breached the development agreement, and in 1998 amended the lawsuit to allege that the city's actions amounted to inverse condemnation (a taking of private property). Judge DiFiglia ruled for the developer, sending the damages portion of the case to a jury, which ordered the city to pay the developer $65.3 million in January 2001. The jury awarded an additional $29.2 million for breach of contract.
The decision stunned the city. Although inverse condemnation lawsuits by developers and landowners are not uncommon, actual awards of damages are rare in California. Moreover, in this case, the damages stemmed from the apparently routine government activities of long-term airport planning and a traffic re-routing. At the time, the San Diego Union-Tribune said, "If DiFiglia's interpretation stands, governments everywhere will be liable every time they do anything that affects private property. Good luck building a new airport, highway or any public project of any sort."
The city got the case moved to Orange County, where Judge Ikola accepted the city's request for a new trial on the breach of contract claim. Still, he upheld the inverse condemnation decision. Both sides appealed, and a unanimous three-judge panel of the Fourth District, Division Two, ruled squarely for the city.
Regarding airport planning, de la Fuente argued that the city acted unreasonably because it failed to ascertain Mexico's interest in the twin port plan or the sharing of airspace. The assertion was based on Klopping v. City of Whittier, (1972) 8 Cal.3d 39, in which the state Supreme Court ruled that "when the condemner acts unreasonably in issuing pre-condemnation statements, either by excessively delaying eminent domain action or by other oppressive conduct, our constitutional concern over property rights requires that the owner be compensated."
The Fourth District ruled that de la Fuente was not eligible for a Klopping claim because the developer "failed to adduce any evidence that the city's announcements concerning the proposed Otay Mesa airport subjected it to direct and special injury."
"If the plaintiff's situation is ‘no different than that of any other landowner' in the area to be affected by the proposed plan, Klopping does not apply," Justice Art McKinster wrote for the court, citing Selby Realty Co. v. City of San Buenaventura, (1973) 10 Cal.3rd 110, 120). The city's airport proposal affected 4,000 to 6,000 acres, so de la Fuente's inverse condemnation claim "fails as a matter of law," the court concluded. Truck traffic became an issue during 1995, when the city re-routed truck traffic while it improved the primary thoroughfare for about nine months.
Truck traffic was sent through the business park, and backups lasted for hours. Some truck traffic diminished after the city finished work on the arterial, and the problem was largely solved by about the time of the trial court's ruling when the city completed a permanent, new truck route to the border.
De la Fuente argued that there was "total gridlock" around and through the business park, denying him the right of access. But the Fourth District rejected the claim, finding that there was always some access, even during the critical period of 1995.
"At most, the traffic backups required tenants of the park to use an entrance which was less convenient. Interference with access which merely requires greater ‘circuity of travel' is not compensable," McKinster wrote.
Bartolotta contended that the court ignored evidence that trucks lined up bumper-to-bumper for hours on end, forcing tenants to drive off-road to reach their businesses. "This was so far beyond the pale of normality, it boggles the mind of anyone with common sense," he said.
The developer's attorney also said the fact that airport planning affected multiple property owners should not impact an inverse condemnation claim. "How can that be the law?" he asked.
As for a new trial on the alleged development agreement breach, the Fourth District ruled that claims for damages prior to June 23, 1994, were time-barred because of a decision in a different case involving de la Fuente and the city. The court upheld Judge Ikola's decision ordering a new trial on both liability and damages which occurred after that date.
Bartolotta said he may ask the state Supreme Court to review the development agreement part of the case, too, but he welcomed a new trial. "Our damages are even bigger than they were before," he said.
In a written statement, City Attorney Michael Aguirre said the ruling saved taxpayers more than $150 million. "The City of San Diego has no money for Roque de la Fuente," he said.
However, one year ago the city revealed it had offered de la Fuente $50 million to drop the lawsuit and two similar suits he has filed against the city. But two years of negotiations and interventions by three judges produced no settlement.
The Case: Border Business Park, Inc. v. City of San Diego, No. E035881, 06 C.D.O.S. 8909, 2006 DJDAR 12713. Filed September 19, 2006.
For Border Business Park: Vincent Bartolotta Jr., Thorsnes, Bartolotta & McGuire, (619) 236-9363.
For the city: Kristine Wilkes, Latham & Watkins, (619) 236-1234.