Despite Opposition, High-Speed Rail Authority Proceeds with Bullet Train Project in California

The High Speed Rail project has faced some setbacks lately, but a recent settlement with Central Valley farmers signals the elimination of a major obstacle.

 In a press release, Adam Gray, a member of the State Assembly from Merced stated:

 "This agreement between the farm bureaus and high speed rail removes one of the last major hurdles we had to overcome before we could realize this huge opportunity for our community"

Construction for the project is planned to start in just months, and new challenges have cropped up in court in the form of questions on the legality of the “blended approach” (described in more detail in this older post) which the Authority has had to adopt. Criticism is focused on the fact that this plan will not allow for the bullet train to make the LA-SF journey in the time provided for in the 2008 voter-approved bond measure.   

While the High Speed Rail’s voter-approved bond money is tied up in court, the Authority needs access to funds in order to begin construction on schedule. In an effort to address the bond-related legal concerns, the Authority filed a “validation action” which seeks to resolve all issues at once in court. But until the judge decides on whether the current HSR plan is true to what Californians approved in 2008, HSR will be receiving a loan in the amount of $26 million dollars, following a vote by the State Assembly budget committee.

High Speed Rail Update: Challenges Mount as Deadline to Begin Construction Approaches

Currently, two out of the three lawsuits that have been filed against the California High Speed Rail Authority have settled, but the Authority continues to face opposition, and with construction scheduled to start this summer. On March 7^th,  the High Speed Rail Authority agreed to a “Memo of Understanding” with a Joint Powers Authority in northern California, which allows for the High Speed Rail to share the track with Caltrain on its route between San Jose and San Francisco.

 Dan Walters’ recent article in the San Jose Mercury News provides the following analysis:

 “Merging the two services is designed to placate project opponents in the high-income neighborhoods on the peninsula. But opposition remains and critics say that a blended system cannot meet the bond measure's requirement that the bullet train carry passengers between San Francisco and Los Angeles in two hours and 40 minutes.”

The court thus far has been siding with the Rail Authority in its recent decisions which have revolved largely around whether the Authority met environmental standards in the planning of this project. The court is scheduled to hold trial in the remaining lawsuit in April 2013. As far as the takings of land, the California Board of Public Works, at its January 14, 2013 meeting, approved the parcels of land which the Authority requested for the project, in order to move forward even though litigation is ongoing. The Authority reasons that if the court does find in favor of the plaintiffs, any eminent domain proceedings or further plans can be put on hold until a resolution is reached.

Court of Appeal Sheds Light on the Rules of Evidence in Eminent Domain Cases

On November 26, 2012, the California Court of Appeal filed an opinion in connection with an eminent domain case.  In County of Glenn v. Foley (2012) 212 Cal.App.4^th 393, the Court of Appeal shed additional light on the interpretation of California Evidence Code sections 822 and 816, which deal with the rules of evidence to be applied in property valuation cases.  The case is about a party named Foley, who had leased 200 acres of his land to the County of Glenn since 1971.  The County had been using Foley’s property as a landfill.  In 2009, the County filed an eminent domain action to acquire the land, plus a substantial amount of surrounding land, also owned by Foley.  

Before the trial, the County filed a motion in limine to exclude all of the testimony of Foley’s appraiser, based on Evidence Code sections 822(a)(4) and 816.  The trial court granted the County’s motion.  Without the testimony of his appraiser, which the trial court excluded from evidence, the property owner stipulated to the value of his property as determined by the County’s appraiser, and the trial judge entered judgment in that amount.  The defendant appealed the judgment, arguing that the exclusion of his appraiser’s testimony violated his constitutional right to a trial by jury. The Court of Appeal held that the constitutional right to a jury trial does not eliminate the requirement that the rules of evidence be followed in an eminent domain case.  However, the Evidence Code must be properly applied.

The defense’s appraisal came in at around $1,700,000.  Foley’s expert had determined that the highest and best use of the property was as an orchard.  The County’s appraiser valued the property at about $637,000, having determined that the highest and best use for the property was as grazing land.   

Evidence Code section 822(a)(4), one of the bases for the trial court’s decision to exclude the testimony of the defense’s appraiser, states that an opinion as to the value of any property other than that being valued, is inadmissible.  The Court of Appeal reversed the trial court’s ruling regarding the section 822(a)(4) issue, stating that excluding an appraiser’s opinion in an eminent domain case is a drastic remedy.  The Court of Appeal felt that the trial court was speculating that the defense appraiser would violate this Evidence Code section, and that instead, the trial judge should have let the jury see the evidence and just allow the County to challenge the weight that the jury should give to the evidence.

Evidence Code section 816, the other bases for the trial court’s decision to exclude the testimony of the property owner’s real estate appraiser, states that, among other things, a valuation witness can rely only on comparable sales that are sufficiently alike in respect to character, size, situation, usability and improvements, to make it clear that the property being sold and the property being valued are comparable.  The Court of Appeal said that section 816 of the Evidence Code is satisfied as long as a comparable sale “sheds light” on the value of the subject property.  As long as the comparable can provide any “rational inference” in support of value, it should be admitted.  The Court of Appeal concluded that in this case, because the comparable sales used by Foley's appraiser had “some tendency in logic to prove the value of the subject property”, the jury should have been able to see that evidence.  

High Speed Rail to Move Forward with Eminent Domain. Resolution Recently Passed for More Efficient Acquisition Process.

On January 14, 2013, the California State Board of Public Works (“SBPW”) approved the selection of the land necessary for the first section of the California High Speed Rail project. The SBPW gave the Authority the green light to start negotiating for full or part takes with the owners of more than 300 parcels.

At its meeting on November 6^th, the California State Board of Public Works voted to approve a resolution that will expedite the process of acquiring properties necessary to move forward with the construction of the High Speed Rail (“HSR”). The resolution was drafted by the Board in preparation for eminent domain proceedings that will affect over 1,000 properties as the first leg of the HSR moves forward, and then thousands more as construction continues through the Central Valley. In light of the difficulty this would present to the Board if it proceeded as it usually does approving each acquisition individually, the resolution delegates the ability to execute right of way contracts to the Board’s authorized agents.

The form contract that the Board approved will make it easier for the High Speed Rail Authority to proceed with condemnation of property. As stated in Board’s November 6^th meeting minutes, a certain set of circumstances will trigger the agent’s authority to enter into the acquisition agreement with affected property owners:

“a) That the contract proposed to be signed is the form of contract approved by the Board,

b) That the property in question is one where just compensation has been set,

c) The property has previously been included within the Board’s site selection approval, and

d) The contract has been executed by the Authority, the right of way agent, and approved by the Department of General Services consistent with Government Code section 11005.”

The full text of the SBPW’s November 6^th Minutes can be viewed here:

http://www.spwb.ca.gov/archives/minutes/documents/fM11_6_12.pdf

The next step for the Board is to consider bids from right of way agents to handle eminent domain negotiations with property owners on its behalf.

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?