Should the Courts Help Los Angeles Commit Fiscal Suicide?

            The juxtaposition of two recent news items makes one wonder if Los Angeles has at long last gone around the bend. First, the ongoing budget disaster. According to the Los Angeles Times, Mayor Villaraigosa acknowledges the enormous financial challenge that the city faces, and pledges to deliver a solution. But even as Hizzoner spoke to the Times, the city was hard at work blowing a quarter of a billion dollars on a project that the court found does not serve any public use and follows no city plan. You don’t believe us, do you? That couldn’t happen, you think, certainly not in today’s economy, could it? Well, it could, it did and it is happening even as we write.

            Take a look at a brand-new opinion of the Court of Appeal in City of Los Angeles v. Superior Court (Plotkin), No. B225082, filed on April 12, 2011. The controversy was a variant of the Klopping problem (after Klopping v. City of Whittier, 8 Cal.3d 39 (1972)). Those are cases where a city targets land for acquisition, and engages in inequitable conduct as a prelude to the de jure taking in order to lower values. The government repertoire of such techniques can be large. See Detroit v. Cassese, 136 N.W.2d 896, 899-900 (Mich. 1965) for a 10-item list of various municipal harassing techniques ranging from just announcing the intention to acquire an area (see Luber v. Milwaukee, 177 N.W.2d 380 (Wis. 1970), and letting the market’s reaction and the passage of time take care of the rest. See Peacock v. Sacramento County, 271 Cal.App.2d 845 (1969). Or, a city can give the market a little “help” by imposition of unsuitable zoning (Kissinger v. Los Angeles, 161 Cal.App.2d 454 (1958)), renovation permit denials, stepped-up level of persnickety building code inspections, encouraging tenants to stay away (People v. Peninsula Enterprises, Inc., 91 Cal.App.3d 332 (1979)), etc. We are sure you get the idea. There were even cases in the Midwest where cities withheld police protection and trash pickup from the targeted areas.

          In the Plotkin case the city razed buildings it had acquired in the targeted area near LAX,  leaving some up and using them for fire department drills and movie shoots. The obvious point of these techniques, whichever ones are used, is  to stigmatize the area, and make its residents understand the hard way, that they had best sell to the city at whatever price the city offers and get on with their lives elsewhere. You can find this subject dealt with at length in our article Condemnation Blight: Just How Just Is Just Compensation? 48 Notre Dame L. Rev. 765 (1973) which received the Shattuck Prize from the American Institute of Real Estate Appraisers (now the Appraisal Institute).

            Such abuses were all the rage in the 1960s among Midwestern redevelopment agencies, notably in Michigan and Ohio; see Detroit v. Cassese, supra, Cleveland v. Carcione, 190 N.E.2d 52 (Ohio 1963), Foster v. Herley, 330 F.2d 87 (6th Cir. 1964) Thomas W. Garland, Inc. v. St. Louis, 596 F.2d 784 (8th Cir. 1979), Amen v. Dearborn, 718 F.2d 789 (6th Cir. 1983). In Pennsylvania it was  Conroy-Prugh Glass Co. v. Commonwealth D.O.T., 321 A.2d 598 (Pa. 1974) and in Oregon, Lincoln Loan v. State Highway Com’n., 545 P.2d 105 (Ore. 1976).  And it happened in California too; see Richmond Elks Hall Assn. v. Richmond, 561 F.2d 1327  (9th Cir. 1977), and People v. Peninsula Enterprises Inc., 91 Cal.App.3d 332 (1979) (discouraging tenants from signing leases). The manifest purpose behind these various strategies is the same: to lower values and to encourage residents of the targeted area to sell for a song and then move elsewhere.  It was a lucrative racket for the condemning agencies until the federal courts put a stop to it in Foster v. Detroit, thereby setting a widely-followed precedent.

             The problem with such “voluntary” transactions, ostensibly without use of eminent domain, is that they are not really voluntary. Let ’s be serious here. If the city razes your block but leaves a vacant building down the street, and uses it occasionally for fire department drills and movie shoots, would you want to continue living there? No? Neither would we, and neither would any rational person. So tenants leave in droves and rent revenues shrivel, forcing landlords to the wall. Now imagine that at this point in this hypothetical story, a fellow with a clipboard knocks on the door, and utters that famous line: “I’m from the government and I am here to help you.” Uh-oh. The “help” turns out to be the city’s willingness to take your now-blighted place off your hands. And this is where the fun begins. The Plotkin opinion is silent on this point, but we would be willing to bet a fine cigar that the city offers under these circumstances likely fell short of the “highest price” specified in California Code of Civil Procedure § 1263.320 as the measure of fair market value (unaffected by the city’s acquisitory plans) that meets the constitutional “just compensation” requirement.

            But in this case, when confronted with the Plotkins’ claim for compensation, the city did something strange. Its response was “Who? Us?” It somehow persuaded the court of appeal that  it was moved by altruism: out of the goodness of its municipal heart, it was only trying to relieve local residents of the burdens of living with excessive aircraft noise emanating from LAX, by relieving them of their homes. 

            This municipal goodness shtick is rather hard to swallow because, first, cities that run airports are responsible for acquisition of adequate buffer zones (Griggs v. Allegheny County, 369 U.S. 84, 89-90 (1962)). Second, the city admitted in discovery that it is spending a quarter of a billion dollars on this caper with no plan in mind. And yet, the Plotkin opinion is explicit that the city was within its rights to assemble all that land near LAX for no particular public use. In the court’s words, “the city had ‘no plan’ for the properties it [had] acquired” and planned to acquire. If you believe that this is indeed the city’s true motivation, get in touch; we may have a great deal for you on the Brooklyn Bridge.

            And so, the question virtually asks itself: does Mayor Villaraigosa and his budget-mending helpers know about all this? Does he realize that even as he assures the voters that the city is doing its best, and struggles to plug the gaping holes in the municipal budget, LAX is blowing a cool quarter of a billion on some hare-brained, unplanned land assemblage scheme? 

            And that brings us to a painful question: How did the city manage to persuade the court, consisting of bright, civic-minded people, to buy its lame story? Oh sure, all the court did, if you read its holding strictly, was to reverse a summary judgment in favor of the plaintiff-owners, presumably letting them prove their case at a trial on the merits.  But the court did so on legal, not factual, grounds. So how in the world could the court place its imprimatur on the idea that the city was spending a fortune in scarce public funds in the midst of an unprecedented recession, on a major land assemblage serving no public purpose and following no plan? How could the court accept the city’s lame story that it was only being kind to residents of noise-impacted dwellings and relieving them of excessive noise levels emanating from LAX? Wouldn’t that be a public purpose meeting FAA requirements? And above all, how could the court say, as it effectively did, that the creation of a noise buffer zone around LAX was not a “public use”? If the city were to set out to condemn land for such a buffer zone, do you think California courts would deny it the right to do so on grounds of lack of “public use”? If you do, let’s sit down, have a nice cup of espresso and talk about that Brooklyn Bridge deal.

            Unfortunately, this is not the first time that the Los Angeles airport management folks have squandered fortunes in public funds with nothing to show for it. Like for example blowing $170,000,000 in the 1970s on the acquisition of some 19,000 acres of land for the now defunct Los Angeles Intercontinental airport in Palmdale that never got off the ground. Or stubbornly refusing to acquire adequate land to buffer jet operations at LAX in the early 1970s, until forced to do so by the courts (Greater Westchester Homeowners Ass’n v. City of Los Angeles, 26 Cal.3d 86 (1979), Aaron v. City of Los Angeles, 40 Cal.App.3d 471 (1974).

       Bottom line: enough is enough. It’s high time that those who run LAX be brought back to earth and made responsible for contributing to putting the city of Los Angeles on a sound fiscal footing. If the LAX folks have all that money to spare, let them transfer it to the city’s general fund so it can be used to keep the city solvent.  

          And it might not hurt for the courts to realize that we are in the midst of a fiscal calamity, with insolvency of the city of Los Angeles not beyond the realm of possibility, and consider that as a factor in reaching the decision whether LAX should be free to blow hundreds of millions on a land assemblage for which it has no plans and which serves no public purpose. After all, our courts worry that providing indemnity for all demonstrable economic losses inflicted on condemnees will bring about “an embargo” on the creation of public works. See People v. Symons, 54 Cal.2d 855 (1960) and its progeny. Well, if that is a legitimate judicial concern, so is the concern that a public entity is hastening municipal insolvency by blowing fortunes on what it concedes to be a unplanned land buying spree that does not serve any public use.

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