Monthly Archives: January 2014

Superior Advocacy in Action

We just came across a weird little item for which we thank Rick Rayl of the Nossaman blog, that reminds us of a wonderful courtroom war story we just have to share with our readers. Quoting from Mr. Kuhn’s blog:

“The City of Loma Linda, like so many California cities, used to have a redevelopment agency.  That redevelopment agency acquired property and embarked on various efforts to, well, redevelop things.  When Governor Brown eliminated California’s redevelopment agencies, many projects were left in mid-stream.

“In the case of Loma Linda, the redevelopment agency purchased some property, erected a fence, and cut off another property’s access to the public street.  It seems like a pretty simple takings case, and the owner sued.  But then Governor Brown’s legislation intervened, and things got weird.

“The redevelopment agency was no longer a viable defendant in the takings case, because it no longer existed.  And the City claimed it was not a viable defendant, because it hadn’t engaged in the conduct that resulted in the taking.”

Fortunately, reports Mr. Rayl,  the trial court rejected that city argument, but the city has appealed and the appeal is pending. Don’t laugh, man. This is California so it’s possible that the Court of Appeal will buy the city’s ridiculous argument. Stay tuned on that one.

We tell you this story because years ago, we were involved in a similar absurdity. The venue was the Mammoth Lakes area, and your faithful servant was privileged to represent the property owner along with the one and only Hillel Chodos, the foremost commercial litigator. What happened was that the county in which the property was located, hassled the property owner and kept him from developing his land, giving rise to an inverse condemnation claim. This was in the olden days before the Supreme Court handed down the Williamson County abomination, under which property owners are no longer entitled to have their claims of constitutional violation tried in federal court. So we filed our action in federal court. But while our case was pending, the city of Mammoth Lakes came into being and its territory included the subject property. So it took the position that, not being the entity that imposed the unconstitutional regulation, it was not responsible for its removal, that being the responsibility of the county which imposed it before it lost jurisdiction over the area. The county, on the other hand, argued that since it no longer had any authority over the subject area (that having shifted to the newly created city), there was nothing it could do.

All this municipal law folderol was not the sort of thing that is litigated every day, so it was new to Larry Karlton, the federal  judge to whom the case had been assigned. Unsurprisingly, he ordered briefing of this issue. The law, as you can imagine was cut and dried — not even California could be so weird as to create an abeyance of governance, under which no one would have authority to govern city territory. That would be akin to what the late legal guru, Bernie Witkin used to call “that most unthinkable of all feudal calamities: abeyance of seizin;” i.e., abeyance of governance. So your faithful servant, ever obedient to their Lordships’ needs and wishes, volunteered to do the briefing, when Mr. Chodos rose and said, “Your Honor, of course we will brief the matter, as you wish, but perhaps I can say a few words to put this issue in its proper light.” And he did:

“This is an action under the Civil Rights Act, Your Honor, so please imagine with me that we are back in the 19th century when Congress just enacted this statute. Imagine further that a wicked southern sheriff has dragged out a black prisoner from the county jail and proposes to lynch him by hanging him from a tree in front of the local court house. So the prisoner’s hands are tied, he is put on a horse, and a noose is placed around his neck. At this point, you ride up, Your Honor, and say: ‘Stop that! I am a federal judge and I order you to cut this man down!’ But the sheriff says: ‘While we were talking, Your Honor, the courthouse clock struck noon, and at that point  this area became the incorporated town of Lynchville, so I no longer have any authority here. You’ll have to talk to the town Marshall.’ So you turn to the Marshall and say: ‘Cut that man down!’ To which the Marshall replies: ‘Why me? I didn’t put him up.’ ”

“So what do we do  now, your Honor? Just let the poor man  hang there?”

At this point it was all over. Not another word needed to be said, or written, and even the bad guys’ lawyers all but conceded the point. Oh sure, we still filed our brief, but it was unnecessary. The point had been made (in case you want to know, the new government entity — in this case the city — takes over all functions and duties of the previous one; i.e., the County. And that, folks, was a display of superior courtroom advocacy.

To get back to the present, we await the outcome of the appeal of the case reported by Mr. Kuhn.

More On the . . . Glub, Glub . . . “Underwater Mortgage” Eminent Domain Takings

In case you haven’t had enough of this tidal wave of misinformation, The New York Times is making sure your supply doesn’t run out. See Shaila Devan, A Long Shot Against Blight, N.Y. Times, Jan 12, 2014, at p. 1 (Business Section). See http://www.nytimes.com/2014/01/12/business/in-richmond-california-a-long-shot-against-blight.html?ref=business&_r=0

To begin with, this one doesn’t tell us that this idea was honked up by a Cornell law professor named Robert Hockett. Guess he’s had his 15 minutes of fame, so it’s time for another activist to step up to the plate. The Times gives credit to Richmond mayor, Gayle McLaughlin, “[a] longtime advocate of left-wing causes,” for coming up with this idea. It “involves a novel use of the power of eminent domain to bail out [underwater] homeowners by buying up and then forgiving mortgage debt.”

Where will the money for these bailouts come from? After all, if you are going to use eminent domain, the constitution requires that you pay “just compensation” and under California law “just compensation” is fair market value of the taken property, which in turn is statutorily defined as the highest price that the property being taken would bring in the open market with both parties to the transaction being unpressured and fully informed. Besides, compensation is decided by a jury that does not have to accept the government’s valuation figures, and first gets to hear both sides’ qualified appraisers in a civil trial. The annals of California eminent domain law are replete with cases in which condemnors who tried to lowball the condemnee/owners wound up paying just compensation running into multiples of condemnors’ inadequate offers (for a collection of such cases see 40 Loyola L.A. L. Rev. at 1146-1148). The Times article doesn’t really explain how the financial angels of this caper can pay the highest price the subject property (i.e., the “underwater” mortgages) would fetch in a voluntary market transaction, and still make a profit by reselling them. Smells like a something-for-nothing scheme to us.

However to give credit where credit is due, the Times is one of the few (the only?) major news source to acknowledge the existence of another major problem, namely that

“the mortgages had been bundled into pools and resold to thousands of investors all over the world. The rules governing many of the pools forbade the investors’ representative, known as the trustee, from selling off mortgages or modifying them unless they were already in default, even though it might be in the investors’ interest to do so.”

But if you use eminent domain to take mortgages that are secured by those bundled bonds, you will necessarily be lowering the value of the security for the remaining bonds in the bundle, thus inflicting damages on the remaining bondholders. That would require compensation to them as well as the lenders. And win or lose, in California the condemor has t0 pay the condemnees’ ordinary court costs (filing fees, deposition costs, etc.). These costs are usually not very big, but if you are talking about hundreds or thousands of cases, they do add up.

So how will the financial “angels” of this caper, before they can take the subject property, (a) pay the full constitutionally required highest market value to the mortgage holders, (b) pay severance damages to the remaining bondholders, i.e., pay for the reduction in bond values to holders of bonds that are not taken but are the security for those mortgages, and (c) still make a profit? Getting sticky, isn’t it?

Oh, we almost forgot. In California there are no mortgages; we use deeds of trust. To bring that up may sound a bit pedantic, but if a law professor can’t be pedantic, who can?

And let’s not forget that if the would-be takers try to lowball the mortgage/bond holders too much, and make them unreasonably low offers,  they will have to pay the condemnees’ litigation expenses, including their attorneys and expert witness fees. Also, if the takings prove too rich for the cities’ blood and have to be abandoned, the same thing happens — the would-be condemnors then have to pay those condemnees’ litigation expenses.

So let’s wait and see how it all turns out. Stay tuned.

“Scranton,” the Boondoggle City.

Today’s New York Times carries a front-page story about the decline of the City of Scranton, Pennsylvania, another American urban basket case that is on the verge of bankruptcy which appears unavoidable because in response to its steady decline, it has been raising taxes, raising taxes, and raising taxes. The problem with that approach, however, is that the city’s impoverished inhabitants are unable to keep up with the ongoing tax increases, and tend to vote with their feet, particularly when the local venue does not have much to offer for the tax buck. So they move out of town or out of state, to places where the grass is greener and the taxes lower. And who can blame them?

“The taxes [in Scranton] are especially egregious to some because so many of the city’s residents are elderly and living on fixed incomes. The median household income in Scranton is$37,000, and nearly one-fifth of residents live below the poverty line.” Alana Semuels, Bankruptcy Is Welcome Here, L.A. Times, Jan. 11, 2014, at p. A1, A10.

All of this sounds familiar so we won’t dwell on Scranton’s current comdition — you can (and should) read that L.A. Times article for yourself. What this post is about, however, is to remind you that Scranton has been the home of one of the biggest, most sneaky, underhanded multi-million dollar federal boondoggles that has not received the publicity  it deserves, and  since it took place around 1990 even the few people who knew about it at the time have forgotten what happened, or have passed from the scene.

Long story short, according to Wikipedia, there was a private collection of steam locomotives up in Vermont. It was originally owned by a local seafood magnate who ran it as a hobby. Alas, it was an expensive hobby and in time, faced with grim financial times in Vermont, it was moved to — ta, da! — Scranton, Pennsylvania. There it was adopted by a local senior congressman who loved old choo-choo trains and decided to stick your generous Uncle Sam with the tab. So over the protest of the National Park Service which wanted no part of this boondoggle, which the New York Timed called editorially “[a] second-rate collection of trains on a third-rate site” (Editorial, N.Y. Times, Dec. 17, 1991) Steamtown came into being after being crammed down the throat of the National Park Service which thought it was a boondoggle and wanted no part of it.

It turned out to be a familiar story. The attendance declined with time, and Uncle Sam by degrees lost his appetite for financing this boondoggle. So far, we have not been able to find the total cost of this caper, or the current annual cost of running it, but it had to be in the tens of millions of dollars. Most of that money came from Uncle Sam, but a lot of it came from local taxpayers. So we aren’t able to say that the creation of Steamtown eventually pushed (or is pushing) Scranton over the fiscal cliff, but it seems clear that it didn’t help  matters any. So if and when the seemingly inevitable bankruptcy is filed by Scranton, do reflect of the Steamtown caper and on how much good could have been done with all that money, had it been spent constructively, instead of being frittered away to feed the personal whim of a powerful congressman.

Last but not least, don’t for a moment think that we are one of those neo-technophobes. In his misspent youth your faithful servant was a mechanical  engineer, and though the  specific field in which he worked was large rocket engines, he loved (and still loves) old machinery in general, and old trains in particular. So it’s nothing personal. It’s just that people who would like to have a collection of steam locomotives, should pay for it and not foist its cost on the abused taxpayers.

Why the Migration to Oregon?

We offer the following excerpt from today’s CNN Money, without further comment. It seems unnecessary

“Oregon has many of the same virtues as California — mild winters, an active lifestyle — but home prices are much lower . . .  The median price for a single-family home in Portland, for example, is $285,000 according to Zillow. In San Francisco, it’s $881,000 and in Los Angeles, $481,000.” Les Christie, More People Moving to Oregon, Jan. 7, 2014.

http://money.cnn.com/2014/01/07/real_estate/oregon-moving/index.html?+Lead

 

 

California Choo Choo (Cont’d.)

If you have an ongoing interest in the California L.A.-San Francisco high speed train and its misadventures, we recommend an article in the New York Times, of January 6, 2014, High-Speed Train in California Is Caught in a Political Storm — click on http://www.nytimes.com/2014/01/07/us/high-speed-train-in-california-is-caught-in-a-political-storm.html?_r=0

It doesn’t contain any hot, latest news but it sums up the status and the controversy surrounding it in an admirably concise way.

Who Benefits From the California Lottery?

You may recall that the when the lottery was established in California, it was supposed to benefit schools — the darling kiddies would get better schools and all sorts of better teaching materials that money can buy. But a new expose by the LA Times (carefully hidden in plain sight by being tucked into its tail end of an article on lottery doings), tells the story about how flush things are at the lottery these days. See Ryan Mentzes, Boom Times for the Lottery, L.A. Times, Jan. 6, 2014, at p. AA1.

As you read this article, it seems quite innocuous — it tells the story of how the folks who run the lottery, tinkered with the winnings  to make them more generous and attract more customers. And they succeeded. The fatter wins have attracted more customers, and increased revenues in spite of being more generous than the old ones. But that is not the point of this post. The zinger comes in the penultimate paragraph tucked in at the end of the L.A. Times article, that goes as follows:

” According to a report from the California Department of Education, most lottery funds given to K-12 schools are used to pay salaries and benefits.” Emphasis added.

And here we thought that those funds pouring in from the lottery were supposed to benefit the kiddies. Guess again.

So here is another bit of verification of the wisdom of the cynic who observed that the lottery is a tax on the stupid.

Land Banking: The Latest Urban Panacea?

According to the New York times, land banking is the latest urban panacea and this time, Philadelphia be the place. See John Hurdle, Philadelphia Forges Plan to Rebuild From Decay, N.Y. Times, January 1, 2014, at p. B1. Click here

Naturally, there are problems. “[N]ot all land banks have succeeded. Critics are concerned about a provision in the ordinance creating the Philadelphia Land Bank that requires City Council approval for all sales, saying that could delay the disposal of properties and bog down redevelopment. An early land bank in Cleveland failed, for example, because it required legislators to sign off on all acquisitions and dispositions . . .”  So the success of this scheme “will depend on the health and strength of the city’s real estate market.” Rots of ruck with that one, guys.

We scoff because the problem has been that over a period of a half-century or so, lots of folks in Philadelphia, Cleveland and other declining cities up and left for the suburbs. So now, when they have been nicely settled down in suburbia, with more lucrative and more agreeable surroundings and safer, better schools,  for a couple of generations, what would make them suddenly up and sell their suburban homes and head back to cities that are still down at the heels or worse, and that do not provide a hospitable environment for families with children? See Joel Kotkin & Ali Mondares, The Childless City, City Journal, Summer 2013, Vol. 23, No. 3.