Project's Growth Inducing Effect Doesn't Result in Compensation
A city that acquires land for two roads through eminent domain does not have to compensate the property owner for the growth-inducing impacts of the roads, the Fourth District Court of Appeal has ruled.
In a case in which 50 cities joined an amicus brief supporting the City of Carlsbad, the appellate panel threw out $2.3 million worth of damages that a jury had granted to the owners of two nurseries. Those damages were based on the notion that the extension of Poinsettia Lane and Brigantine Drive — for which land was condemned — would speed residential development in the area, and that the growth pressure would shorten the nurseries' life spans.
"[T]he claimed shortened life expectancy and depreciation of nursery business assets and improvements is caused not by the construction and use of extended Poinsettia Lane and Brigantine Drive, but by the residential development on surrounding properties claimed to have been ‘accelerated' by that use," the court ruled. "[A]s the city persuasively puts it, ‘growth inducement is simply not part of the design, construction and operation of the public project, which is the basis for compensable severance damages.'"
In June 1998, Carlsbad filed eminent domain actions against the owners of two properties. Joseph and Barbara Rudvalis owned one parcel, on which they operated a wholesale orchid nursery. The other property was owned by William and Donna Baker; Pamela Koide leased that property month-to-month and ran a wholesale nursery. The nurseries were nonconforming uses on land that had been designated for residential development in the city's general plan since 1965. The city sought .05 acres of the Rudvalis property and 3.07 acres of the Baker's land to build two roads.
After a trial, a jury awarded the Rudvalises $118,000 for physical damages to personal property, $745,000 in economic damages to personal property, and $640,000 in "economic damages to improvements pertaining to realty severance damages to improvements." The jury awarded Koide $153,000 for physical damages to personal property, $759,000 in economic damages to personal property, and $195,000 in economic damages to realty improvements. Furthermore, the court awarded litigation expenses of $346,000 to the Rudvalises and $264,000 to Koide.
After the court refused the city's request for a new trial, the city appealed. The city did not contest the awards of $118,000 and $153,000 for physical damages. But it did appeal all of the economic damages and the litigation expenses. A three-judge panel of the Fourth District, Division One, overturned the lower court. The appellate court threw out the $2.3 million worth of economic damages to personal property and realty improvements, and the Fourth District directed the lower court to reconsider litigation expenses.
The nursery owners and their experts contended that accelerated urbanization resulting from the new roads would shorten their businesses' remaining economic life by about six to eight years, so the city should compensate the owners for their potential losses. The city countered that compensation was not justified because the economic damages were not the direct result of the condemnatory act.
Siding with the city, the Fourth District focused on "the causation element." Damages must be "based on conditions ‘caused by' or ‘resulting from' the project that are substantiated by competent, nonspeculative and nonconjectural evidence," Justice John O'Rourke wrote, citing the state Supreme Court's landmark eminent domain case Los Angeles Transportation Authority v. Continental Development Corp., (1997) 16 Cal.4th 694 (see CP&DR Legal Digest, September 1997.). In the Carlsbad case, the damages claimed by the nursery owners did not flow directly from the public project's construction and use.
"Even if we were to assume the subject project attracted residential development to the area, such urbanization would occur and the defendants' asserted damages would be exactly the same if the road extension passed through adjoining property not owned by the defendants. In fact, much of the incoming development was not dependent on the Poinsettia extension."
Furthermore, both the Rudvalises and Koide continued to operate the nurseries at the time of the trial — three years after the project's completion, the court pointed out.
O'Rourke wrote that even if the court accepted the nursery owners' argument that the project caused the damage, the damage caused no injury because the nursery owners "have no legal right or vested interest in keeping the surrounding land free of incoming development or increased population."
As for the damages to removable personal property, the court said the general rule is that such property is not compensable. "It is only where personal property is ‘damaged or destroyed by the physical appropriation of a portion of the owner's property' that such damage is compensable in eminent domain," O'Rourke wrote, citing Baldwin Park Redevelopment Agency v. Irving, (1984) 156 Cal.App.3d 428. The nursery owners were not uprooted, the road did not encroach upon their buildings or assets, and the condemnation did not render relocation impossible, O'Rourke wrote. Plus, actual physical damages to assets such as plant stock were awarded separately.
Moreover, lost future income from allegedly damaged property falls in the category of "goodwill," and the nursery owners had withdraw claims for goodwill damages prior to the trial, the court noted.
City of Carlsbad v. Rudvalis, No. D039112, No. 03 C.D.O.S. 4950, 2003 DJDAR 6275. Filed June 10, 2003.
For Carlsbad: Ronald Ball, city attorney, (760) 434-2891.
For Rudvalis: Gary Weisberg, Palmieri, Tyler, Wiener, Wilhelm & Waldron, (949) 851-9400.