Los Angeles Metro Regional Connector, Businesses Likely to Be Displaced

The early stages of construction began this week on the Metro Regional Connector project in downtown Los Angeles, with utility relocation work in affected areas. The intent of the Regional Connector, a LACMTA project spanning approximately 2 miles, is to streamline travel for transit riders by eliminating transfer points in downtown Los Angeles.  The Regional Connector is a light rail that will bridge the Expo and Blue lines at the 7^th/Metro Station with the Gold Line adjacent to Little Tokyo. The Project would also allow uninterrupted travel between Long Beach and Montclair/East Los Angeles and Santa Monica and the San Gabriel Valley.  The Final EIR/EIS which was released on January 20, 2012, found that downtown stations where transfer points are currently located are overburdened by the volume of Metro riders. The long term goal for the light rail is to allow travel for a considerable distance both north/south and east/west with no need to transfer.

 

The Locally Preferred Alternative set forth in the Final EIR will require displacement of approximately 11 parcels, most of which are businesses, and will include temporary as well as permanent easements. In March, it was reported that several businesses with longstanding roots in the Little Tokyo area will be affected when construction begins in 2013.

Fresno-Merced Leg of CA High Speed Rail Project Progresses

The High Speed Rail Authority’s planning of the first leg of the project, Fresno-Merced, steadily moved forward over the summer, starting with Governor Jerry Brown’s signing of SB 1029 in July, which provided almost 5 billion dollars in transportation improvement funds. Then in September, the Federal Railroad Administration issued a “Record of Decision” giving the go-ahead to this first segment of a project that will eventually link the Central Valley with the major urban centers of Los Angeles and San Francisco. As part of the project, hundreds of residential and commercial properties and thousands of acres of agricultural land will be acquired through eminent domain laws.

On Friday, November 16, 2012, the High Speed Rail (“HSR”) overcame an obstacle as a Sacramento Superior Court judge denied a motion filed by litigants in a Madera County case against the High Speed Rail Authority.  The lawsuit in Madera was filed by opponents of the high speed rail, which includes businesses along the proposed route as well as the local Farm Bureaus. Plaintiffs in the lawsuit filed a Motion for a Preliminary Injunction, to halt construction on the HSR. They claimed that if the High Speed Rail project is to proceed as scheduled along the route chosen in the Record of Decision, it will affect farmers prior to the beginning of any actual construction. The injunction would have stopped the project in its tracks, including property acquisition as well as entering into construction contracts, pending the resolution of the Madera County case, which is still ongoing.

San Bernardino County's Proposal to Use Eminent Domain to Acquire and Restructure Private Loans

The controversial plan to rescue the real estate market in San Bernardino County, California, has gained national attention. The dispute is centered on the use of the power of eminent domain to acquire mortgage loans on homes that are underwater (loan balance greater than market value of the property.)  Since the real estate bubble burst, the County of San Bernardino, part of what is known as the Inland Empire area of southern California, has experienced a foreclosure rate much higher than the national average.  Enter Mortgage Resolution Partners (“MRS”), a private investment firm based in San Francisco, which has been shopping around a solution for the housing crisis. Officials in San Bernardino, arguably facing one of the worst examples of the crisis, are now considering their offer.

Hoping to provide some relief for homeowners in a region that’s filled with abandoned and half-finished projects, San Bernardino local governments are exploring the option of allowing MRS to purchase mortgage loans on homes that are underwater.  The loans would then be restructured, with the goal of allowing the homeowners to keep their homes. In order to use eminent domain power to do this, the cities of Fontana and Ontario and the County of San Bernardino executed an agreement to create a Joint Powers Association. In California, the Joint Exercise of Powers Act, California Government Code § 6500, allows two or more public agencies to jointly exercise a common function.

The program is aimed at certain type of mortgages – those that have been securitized – this means that the loans were consolidated and sold off to multiple private investors. Because of this, these types of loans cannot be renegotiated because there are so many varied and unrelated parties that hold an interest in them.  According to news sources, there are about 150,000 homes in the County of San Bernardino with underwater mortgages, a fifth of which are securitized in this manner.

This unusual use of the power of eminent domain raises some important legal issues.  Article I, § 19, subdivision (a) of the California Constitution states that private property may be taken or damaged only for a "public use".   Subdivision (b) prohibits acquiring an owner occupied residence for the purpose of conveying it to a private person.  California Code of Civil Procedure § 1240.010, part of California's Eminent Domain Law, states that the "power of eminent domain may be exercised to acquire property only for a public use."  In addition, Code of Civil Procedure § 1240.030 sets forth the requirements for exercising the power of eminent domain: (a) the public interest and necessity require the project; (b) The project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury; and (c) the property sought to be acquired is necessary for the project. 

When one thinks of the government acquiring property by way of eminent domain, one tends to think about a traditional public works project, such as a right of way for a bus line or light rail system, a highway widening, a school, police station, etc.  The proposal here is different.  MRP's proposal is to take a private person or entity's loan asset in an owner-occupied residence and sell it to another private investor entity.  One must apply the rules set forth above to see if that plan comports with California's Eminent Domain Law.  There are a number of issues, some of which may be:

      (1) Is MRP's plan a "public use"?  Well, it's not a traditional form of a public project, as listed above (not for a highway, school, etc.) However, the legislative comment to Code of Civil Procedure § 1240.030 states that the term "project" is intended "to apply to any type of public use regardless whether the use is active (requiring construction of an improvement) or passive (requiring appropriation of property in unimproved condition.)"  Whether the MRP plan is a public use will be a source of argument.  It seems to me though that the implication of the term "project" in the code section is for something requiring the physical use of the property, not a lien on the property. 
      (2) Is it permissible for a government entity to take away private property and give it to another private entity?  This will be another big source of argument. There is old case law in California which holds that the government does not have the power to take the property of one and give it to another.  For example, see Gillan v. Hutchinson (186) 16 Cal. 153, 156; Consolidated Channel Company v. The Central Pacific Railroad Company (1876) 51 Cal. 269, 272; Nickey v. Stearns Ranchos Company (1899) 126 Cal.150, 152-153; and Fall River Valley Irrigation District v. Mt. Shasta Power Corporation (1927) 202 Cal. 56, 67.
      (3) Since the loans in question relate to owner-occupied homes, is the proposal barred by subdivision (b) of Article I, § 19 of the California Constitution, which prohibits state and local governments from acquiring by eminent domain an owner-occupied residence for the purpose of conveying it to a private person? I suppose an argument can be made that since these loans relate to owner-occupied homes, the loans cannot be taken and given to another private entity, even though the private residences in question, under the proposal, are to remain with the same owner. (The whole goal of the program is to try to keep owners in their homes.)
      (4) Finally, plenty of arguments can be made about whether the MRP plan satisfies all 3 elements of Code of Civil Procedure section 1240.030, namely that the project is required by public interest and necessity, the project is planned in a manner most compatible with the greatest public good and least private injury, and that the property (i.e. the loans) is necessary for the project.  What do you think?

Attorney's fees in an eminent domain case in California

In an eminent domain lawsuit in California, can a property owner obtain an award of attorney's fees against the condemning government agency?  According to California Code of Civil Procedure section 1250.410, at least 20 days before an eminent domain trial relating to the issue of compensation to the property owner, both the government and the property owner are required to exchange their final offer (from the government) and final demand (from the property owner) for compensation. Within 30 days after judgment in the case, if the the property owner thinks that the government's pre-trial offer was unreasonable, and that the property owner's pre-trial demand was reasonable, in light of the evidence admitted at the trial and the compensation actually awarded to the property owner at the trial, then the property owner can file papers requesting that the court award litigation expenses to the property owner, which includes the property owner's reasonable attorney's fees. 

But what if an eminent domain/condemnation lawsuit is resolved before the trial, with one of the parties accepting the other's Code of Civil Procedure section 1250.410 pre-trial offer?  In that case, can the property owner still obtain an award of attorney's fees against the government?  This issue was addressed recently in the case People ex rel. Department of Transportation v. The Superior Court of Sutter County (2012) 203 Cal.App.4th 1505.  The Court of Appeal's decision was filed on March 1, 2012. 

In the Sutter County case, the parties exchanged an offer and demand, as required by section 1250.410.  The condemnor, the Department of Transportation ("DOT"), accepted the property owner's demand and the parties entered into a stipulation for judgment in condemnation, before the trial started. However, the stipulated judgment mentioned nothing about litigation expenses.  The property owners then made a motion for litigation expenses, which the trial court granted, including an amount for attorney's fees.  The DOT subsequently filed a petition for a writ of mandate (similar to an appeal) with the Court of Appeal, and the Court of Appeal agreed to review the matter.  The DOT argued that when the condemning agency accepts the property owner's demand, thereby avoiding a trial, the property owner is not allowed to obtain its litigation expenses from the government.  The Court of Appeal agreed, stating that the focus of section 1250.410 is a case where "the government's unreasonable conduct forces the matter to trial."  In this case, there was no trial, and the Court of Appeal ordered the trial court to vacate its award of litigation expenses in favor of the property owners and enter a new order denying those expenses.