We were perusing some news on line the other day, and noticed that the Washington Post on line edition lists news of Law and the Courts, including news from the U.S. Supreme Court, under the heading of “Politics.” Interesting. We wonder what their Lordships think about that characterization, and what the Post might say editorially if someone who is critical of a SCOTUS decision the Post likes, were to dismiss it as mere politics.
We are reliably informed that yesterday, following a five-week trial, a jury in Riverside, California, returned a verdict in the taking of a 233-acre flowage easement, plus a small taking in fee simple and a small temporary construction easement. The figures were as follows. Condemnor’s evidence – $2,300,000. Owner’s evidence – $17,007,166. The jury verdict was $15,000,005, or 6.5 times the condemnor’s figure.
The case is Orange County Flood Control District v. Altfillisch Construction Co., and the taking was for
occasional floodwater storage that would be needed as a result of a modification of the Prado Dam.
The controversy centered on whether the subject property was developable. The condemnor argued that it was not, because it was in a floodway of the Santa Ana River. The owners disagreed and contended that by a process of modifying the floodway through FEMA and filling some wetlands (for which obtaining necessary permits was probable) the property could be developed, and this enhanced its fair market value way above the its value as raw unusable land.
The smiling counsel for the property owners is Ed Burg of Manatt, Phelps & Phillips in Los Angeles.
Check out the latest post on the blog of our colleague Rick Rayl (http://www.californiaeminentdomainreport.com/).
It has to do with how to determine the award where, for one reason or another, the trial judge strikes or excludes one side’s evidence. Must the outcome then be a verdict in the amount contended for by the side whose opinion is left standing, in the amount of that opinion? Or, where the party whose evidence was stricken contends that (a) even if his opinion of value was legally flawed, that does not make his adversary’s opinion of value correct because (b) the [surviving] opinion of value is factually wrong. And so, the party whose opinion was stricken insists on his right to reveal its flaws or falsehoods, if only by cross-examination. In California case law, as Mr. Rayl correctly points out, goes both ways. His conclusion:
“In my view, either a party with no evidence is stuck with the other party’s value, or they remain entitled to a trial and a shot at cross examination. I actually see good reason for either rule — but I think that the rule should be applied consistently. Parties should not have this issue decided based on the mood or proclivities of individual trial judges (or which side’s appraiser gets excluded).”
We agree with the last quoted sentence, but we thought that the right to confront and cross-examine adverse witnesses is a matter of due process. No? Besides, to don the garb of legal realism, since when does judicial consistency have anything to do with decisional law? As the beloved California Supreme Court Justice, the late Otto M. Kaus once put it (improving on a line of Justice Holmes): “The life of the law has not been logic, but expedience.” To say nothing of what is politely called judicial result orientation.
Anyway, to illustrate the problem with California law on this point, allow us to tell a war story from a case in which your faithful servant was involved. It was a partial taking of the front half of a one-acre parcel improved with a modest old house built when the area was out in the boondocks and a favorite of retired old folks (it later became a fashionable, horsy exurban area). The taking was of land only; it did not touch the house. It turned out that because of the change in the character of the area, there were no comparable sales of land anywhere near the subject property, only sales of those little old-folks retirement homes, or of large, horsy, estate-sized homes. But no sales of buildable land. The owner’s appraiser acknowledged that, and offered his general experience in support of his opinion. The condemnor responded with a motion to strike his opinion, which the trial judge granted, thus presenting the jury with only one opinion of value.
When the condemnor’s turn came, its appraiser announced that he found a comparable — a similar parcel improved with a similar house, but the house had burned down, so the sale was effectively treated by the parties as a a sale of land, as confirmed by its buyer, and as such a comparable. The judge admitted that sale.
In rebuttal, the condemnee called the owner of that supposedly burned-down house and — surprise, surprise — he testified that (a) the house had not burned down, that he was living happily in it, and (b) he never saw or spoke with the condemnor’s appraiser. The condemnor took the position that this only gave rise to an issue of fact for the jury. The judge agreed.
So the owner’s counsel proceeded to argue to the jury that condemnor’s opinion was untrustworthy and should be rejected. Whereupon the judge interrupted the argument and said that he would be instructing the jury that because only one side’s valuation opinion came into evidence, the jury would have to award it, neither more nor less. The lawyer responded: “Is your Honor telling me I can’t argue the witness’ credibility?” “Use your judgment,” said the judge. So the lawyer proceeded to argue that the condemnor’s appraiser’s opinion was unreliable, and should not be swallowed whole by the jury. When he finished, the judge sent out the jury and held the lawyer in contempt of court, which pissed off the lawyer mightily. So much so, that when the time came for the owner’s rebuttal jury argument, the aforementioned pissed-off lawyer told the jury the story about the trial of John Peter Zanger, and the famous principle established by it in pre-revolutionary times, that where the evidence is disputed, judges may not tell jurors what their verdict should be. So the judge held him in contempt again.
While your faithful servant was busying himself preparing a petition for a writ of mandate in the Court of Appeal, to rescue the aforementioned pissed-off lawyer from the judges’ clutches, the jury came back, and the following ensued: “THE COURT: Have you reached a verdict?” “JURY FOREMAN: We have reached a decision but not a verdict. Our decision is that we can’t arrive at a verdict because you gave us contradictory instructions. You instructed us that we were the sole judges of the credibility of witnesses, but you also instructed us to come back with an award equal to the condemnor’s appraiser’s opinion of value. But we can’t do that because we think he’s a liar.”
So who was right? The judge or the jury foreman?
Recall, if you are a Californian, that our state Constitution requires a trial by jury in condemnation cases, and the judge can’t interfere with that (see Metropolitan Water District v. Campus Crusade for Christ, where our Supreme Court had to explain that principle to a trial court judge). And trial by jury means that the jury — not the judge — is the trier of witness credibility.
So to get back to Mr. Rayl’s conundrum, there ain’t any — conundrum, that is. Where there is reason to doubt the veracity of a witness’ testimony — whether it is or isn’t the only evidence – it’s up to the jury to pass on the appraisers’ credibility — that’s what trials by jury are for. At least out here in la-la land juries are routinely instructed that they are sole judges of witness credibility.
Full disclosure. We were involved in the Campus Crusade for Christ case — it was our swan song as an appellate lawyer, the last case of ours as an appellate lawyer, although Norman Matteoni argued it. It made our exit from practice pretty cool.
Follow-up. Check out Rick Rayl’s follow-up, The Liston Brick Case: A Quick Follow-Up, August 22, 2012, on his blog, http://www.californiaeminentdomainreport.com/.
A handy new state-by-state summary of eminent domain law:
FIFTY-STATE SURVEY: THE LAW OF EMINENT DOMAIN
Published by First Chair Press
|About The Law of Eminent Domain|
|A single resource for eminent domain practitioners, this guide is a reference for questions about eminent domain and condemnation procedure in every state and the District of Columbia. Each state outline is organized in the following manner:
William G. Blake, Editor
We offer, more or less without comment, the following statement of Niall Ferguson, appearing in his article Obama’s Gotta Go at Newsweek.com — go to http://www.thedailybeast.com/newsweek/2012/08/19/niall-ferguson-on-why-barack-obama-needs-to-go.html :
“The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues—what economist Larry Kotlikoff calls the true “fiscal gap”—is $222 trillion.” Emphasis in the original.
We just can’t see how that “fiscal gap” can be bridged without a government-engineered runaway inflation.
If you are not acquainted with Ferguson’s view of things, he is no gloom-and-doom peddler. We highly recommend his book, CIVILIZATION: THE WEST AND THE REST. It explains a lot about the condition of the world and the reasons why the United States became the promised land, unlike any other.
In German, Schadenfreude, means a feeling of gratification at the misfortune of another, and is particularly called for when that “other” gets his just deserts. And so it is with Best Buy, the electronic retailing giant that is in the process of getting its comeuppance for its abuse of the power of eminent domain. You may have caught in recent newspaper business pages the dispatch that Best Buy’s earnings are tanking — 87% down from last year, and its CEO — make that former CEO — is trying to buy the company from its current shareholders. See Chris Isidore, Best Buy Earnings Plunge, money.com August 21, 2012
So why should that bit of corporate misfortune gratify anybody? Answer: because it is a case of justice writ large. Back around 2000, Best Buy approached the Walser family in Richfield, Minnesota, offering to buy its land (which the Walsers were using as a car dealership). The Walsers wouldn’t sell, at least not at a price agreeable to Best Buy. What now? Need you ask? This is America, man. Before you could say “eminent domain,” the city filed a condemnation action to take the Walser property in order to turn it over to Best Buy as a site for its new headquarters. The Walsers opposed the taking but to no avail. See the Minnesota Court of Appeal opinion in City of Richfield v. Walser Auto Sales, 630 N.W.2d 662 (Minn.App. 2001) rubber-stamping the taking. The Walsers appealed to the Minnesota Supreme Court (641 N.W.885) but lost there too. It turned out that one Justice disqualified himself, and the others were evenly divided, so the court could not render a proper majority opinion, and the lower court decision was thus left standing.
But that was not the end of the legal story. There was also a challenge to the use of TIF bonds to finance this caper. Under Minnesota law, TIF-financed takings are proper only to provide housing or eliminate blight. And though here the subject property was occupied by a car dealership and homes that were unblighted — at least unblighted to an intelligent English-speaking person untutored in the double-talk of eminent domain law — and the taking was for a humongous office building, not anybody’s idea of housing, the court managed to stuff these facts into the elastic definition of blight, although it also chastized the city. So quick as a bunny, the city came running with more money — another $9 million, to be exact, which when added to its original offer to the Walsers of $9.4 million came to a total of $18.4 million, thus qualifying this caper for an entry in our “Lowball Watch” category of cases.
The financial end also included a deal whereby the $2.5 million increase in tax revenues expected to be generated by the subject property in in its “after” condition would go to — who else? — Best Buy, not the city which under the terms of this deal would have to wait 25 years — a quarter of a century — to get its hands on the tax benefits from this deal. Way to go, Best Buy! And by the way, let’s not forget that those are TIF bonds being used here, which means that some (most? all?) of that additional incremental tax revenue would have to be siphoned off somehow to service those TIF bonds. Just how that is to be accomplished if Best Buy gets to keep all those additional tax revenues for a quarter of a century is not altogether clear to your faithful servant. But hey man, what do we know? You can read all about it in Terry Pristin, Eminent Domain Revisited: A Minnesota Case, N.Y. Times, October 5, 2005, Sec. C, p. 9, and tell us. You can find it on Lexis/Nexis.
Bottom line, though Best Buy is not [yet] on the ropes, it is facing some lean days ahead, and its new headquarters building is turning out to be not quite the financial boon to Richfield as projected in those heady days of yore when the Walser propertywas being taken by eminent domain to feather Best Buy’s nest by kicking out some 82 homes and businesses. We are reminded of the line of California Court of Appeal Justice Macklin Fleming who once observed in one of his opinions that redevelopment project promoters tend to promise to bake a bigger economic pie, with larger slices going to everybody, when all too often what they produce is pie in the sky.
Follow up. The New York Times of August 22, 2012, at p. B2, carries an article entitled Best Buy Reports a 91% Drop in Second-Quarter Profit. “. . .the company continues to face significant callenges,” says its current CEO. Go to http://dealbook.nytimes.com/2012/08/21/best-buys-tough-earnings-may-lift-schulzes-hopes-a-little/?scp=2&sq=Best%20Buy&st=Search
In recent months there has been much chit-chat on line and in the press about a supposed return to cities, whereby young folks are abandoning suburbs and heading for the bright lights and abundant amenities of cities. Now it appears that the problem with that depiction is that it isn’t true. If you look past percentages and look at the actual numbers you discover that the numbers of people choosing to live in the suburbs by far exceeds those who decide to live in the cities.
Do take a look at Bill Miley, Lies, Damn Lies and Statistics . . . Will Suburbs Soon Become Ghost Towns? metrostudyreport.com, August 7, 2012 — click here. Rather than go through the whole megillah, examining the dubious statistics behind this, we quote the meat of Miley’s point.
“Brookings Institution demographer William Frey had researched the most recent census data to break down estimated growth in terms of cities and suburbs. According to his analysis of the 51 metropolitan areas with more than 1 million people, the primary cities in those metros grew an average of 1.1 percent, compared with 0.9 percent growth in the suburban areas between July 2010 and July 2011. So what was wrong with most of the reporting? It’s the deliberate misinterpretation and manipulation of the data to imply false trends. First of all, the central cities make up only a small portion of the metropolitan areas, and a faster percentage growth doesn’t translate into a larger numeric growth. The data revealed that Atlanta grew by 2.4 percent while its suburbs grew by only 1.3 percent. But Atlanta’s 2.4-percent gain meant 10,040 new residents, while the suburbs 1.3 percent gain meant 62,869 new residents. Numerically, suburban growth swamped the growth of the central cities. There’s another way that a city’s percentage growth can be guaranteed and inflated quite easily. It’s called annexation.” Emphasis added.
So it appears that all the “back to the city” chit-chat may only be so much BS peddled by people pursuing an ideological agenda. It might be interesting to ask the promoters of this “back to the city Movement” if (a) they have school-age children, and if so (b) do those kids go to urban public schools. Somehow we don’t think they do.
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The wretched idea of some San Francisco vulture-capitalist “investors” who are out to make a buck from “underwater” homeowners’ misery shows no sign of going away in spite of the fact that the feds have indicated that they won’t allow it with regard to mortgages owned by them, which strikes us as sensible because they own (or insure) most of those mortgages, and it is incontestable that a county or city may not condemn federally-owned property. Nonetheless, this thing is now going viral/farcical, with the likes of Arianna Huffington and actor John Cusack — the noted eminent domain mavens — expostulating on the Huffington Post on what a wonderful idea this would be. In fact, they don’t know what they are talking about; they can’t even keep San Bernardino County and the city of San Bernardino straight, which in this case is important. The County of San Berdoo (as we Californians often put it) along with a couple of others, is dipping its toes into this murky water before formally filing such condemnation actions, whereas the City of San Berdoo is in bankruptcy and couldn’t pay for a chicken coop. This may strike you as a minor point, but as they say, “the devil is in the details,” and it does illustrate the depth of knowledge of some of the folks who have plunged into this subject in spite of their — shall we say? — modest degree of pertinent knowledge of the subject of eminent domain in general and the law of valuation in particular.
Another strange description of this caper comes from the Sacramento Bee (H. Sangree, Sacramento Area officials Explore Using Eminent Domain to Aid Underwater Homeowners, August 11, 2012). Hoo boy! Wait until you read this one. Sangree quotes one of the private machers behind this caper as outlining the following plan. Talk about creative appraising! He offers this as an example: say a homeowner paid $300,000 for his home which is now worth $200,000, with the mortgage worth $160,000. So you might think that the “just compensation” payable for the mortgage would be $160,000 which is its Fair Market Value (FMV) as determined by the court. Right? But the way these folks figure it, they would renegotiate that mortgage and make the balance on the note secured by it $190,000 which would be $30,000 more than the FMV of the mortgage as determined by the court; i.e., what they paid for it, and a quick $30,000 for them (not to mention any fees exacted in the process). Nobody seems to be asking why the awesome sovereign government power of eminent domain should be enlisted in quest of quick private profit. Likewise, since this private profit element is the lynchpin of this caper, it is also peculiar that nobody is asking how the private interest is predominant, so as to justify the application of the power of eminent domain. We always thought that in private-to-private eminent domain property transfers, the public interest must predominate and the private benefit is limited to being incidental to it, as the court explained in County of Los Angeles v. Anthony.
None of these made-up figures used in the above example take into account the fact that these are performing mortgages these folks are talking about — the house may be underwater but the mortgage is performing; payments continue to be made on it as always.
All of that, particularly the value of the still-performing mortgage, would have to be worked out in litigation, and the prospective condemnees — the folks who own these mortgages, not the homeowners — are not your run-of-the-mill condemnees who typically meekly accept whatever the condemnor offers. It shouldn’t take these more sophisticated folks long to figure out that condemnees who reject condemnors’ (often lowball) offers, prepare their own valuation case, and take it to court with their own appraisal witnesses, usually demonstrate the lowball character of condemnors’ offers, and make out much better in court (whether before judges or juries) than by accepting the offer. And in California, when you demonstrate that the condemnor’s offer was unreasonable, you may be awarded your litigation expenses (including attorneys’ and appraisal fees) in addition to the award of “just compensation.” So if this caper ever materializes, this litigation should be fun to watch.
Full disclosure. Your faithful servant was interviewed by Mr. Sangree, the author of the above-referenced Sacramento Bee article, and our views are noted and quoted in a subsequent Bee article – click here.
The recession and its calamitous impact on home prices have been on our mind, but we haven’t said much about it because, silly as it may sound, we didn’t want to let the cat out of the bag, so to speak, and give ideas to the bad guys. But reality is not to be denied, and our colleague Brad Kuhn on the California Eminent Domain Report blog of August 10, 2012, (click here) has plunged into this subject, so we may as well deal with it too. Our concern has to do with condemnation of “underwater” homes that are occupied by their owners – not the condemnation of underwater mortgages, a subject that has been taking up so much paper and electronic media lately. We have had things to say about the latter lousy idea that if implemented is likely to wreak havoc on the home financing markets — if nothing else, who will want to finance home purchases with the knowledge that in a down market, the government, fronting for a bunch of profit-seeking vulture capitalists, can just take the mortgage and turn it over to more favored investors? True, markets have a short memory, but all that is being overshadowed by the latest wrinkle.
As Brad Kuhn brings to our attention, it now turns out that some condemning bodies are taking advantage of the recession in order to condemn homes for conventional public projects using eminent domain — like the Bear Valley Parkway in San Diego County. There hasn’t been much of that because local governmet entities are pretty much tapped out, and in no position to be spending real money on land for public projects. But this is not the case in some situations. The problem is that the usual measure of “just compensation” is fair market value, or in California, the highest price that a willing but unpressured buyer would pay voluntarily for the subject property to a willing but unpressured seller, both parties being aware of the property’s good and bad features, and giving due consideration to the property’s highest and best use.
But if the subjet property is “underwater” that means that after such fair market value is paid, the home owners get nothing, beacause they have no equity in their home, and the entire award in such cases goes to the lender, leaving the homeowners literally out in the street — without a home and without any compensation. Kuhn provides us with an example of a homeowner whose home is $90,000 underwater. Worse, if the mortgage is not what we Californians call a “purchse money deed of trust,” such an owner would wind up in debt to the lender to the tune of $90,000. Reminds us of the notorious Mame Riley case in Washington, DC, in the 1950s, where the owner was turned out of her home with no compensation (which deprived her not just of a roof over her head but also of a small rental stream), and left her in debt to her lender.
The bad news here, the really bad news, is that under current law, nothing can be done about that should the condemnor pursue that route. The market is what it is, and it can be harsh,. And though our sympathy is with such homeowners, the bottom line is that one should be prudent and not go into debt in amounts one can’t handle in case of an economic downturn.
So stay tuned, and see to what extent government entities will go the “vulture” route and abuse underwater homeowners in this fashion. On the other hand, when a community really needs public projects, there isn’t much that can be done about this, barring new, creative solutions that those who govern those communities may come up with — assuing they are willing to try.
We are off to speak at the 28th Annual ALI-CLE (Formerly ALI-ABA) Land Use Institute: Planning, Regulation, Litigation, Eminent Domain, and Compensation, in Chicago, and we will probably take the occasion to enjoy a side trip in the Mysterious East. Modern technology being what it is, we expect to post some new items during our absence, but we don’t expect this activity to be as frequent as when we are in the saddle at our home base. But do keep an eye on this blog; you never know what interesting stuff may surface.
So stay tuned and keep in touch.