Category: Uncategorized

The Housing Doo-Doo Hits the Fan in California

The other day we noted a big article in the LA Times, reporting the calamitous and growing housing situation in California. ( http://www.latimes.com/projects/la-pol-ca-housing-supply/ ) Today we follow up with another journalistic heavyweight, to wit, the front page of the New York Times; Adam Nagourney and Conor Daugherty, Housing Costs Put California in Crisis Mode, NY Times, 7/8/17, at p. A1. To get the whole thing, go to https://www.nytimes.com/2017/07/17/us/california-housing-crisis.html?ref=todayspaper&_r=0

The bottom line is that California state law requires that cities follow the housing elements of their general plans which include the requirement that provisions be made for affordable housing. But this law is administered by cities and they have no intention of following it because their populations are the very embodiment of NIMBYism and they take a dim view of their local glorious leaders increasing the local housing stock. Period. One of the transparent gimmicks used by cities to stultify new housing is to approve commercial zoning with room for commercial construction that will employ, say, over 5000 new employees. But at the same time they approve residential zoning that will provide room for maybe 500 new dwellings. The result is right out of classic Econ 101: the demand for housing overwhelms supply, with prices zooming up accordingly. In the last five years, California housing prices have jumped by as much as 75%. And it is no longer posh coastal communities that we are talking about. This madness is spreading to inland communities.

And not much relief is coming from the courts which stand ever-ready to nit-pick housing project environmental reports to death, which — to put it mildly — isn’t helpful at all.

So stand by for the inevitable popping of our housing bubble. To borrow the line of Gretchen Morgenson of the New Yourk Times when a few years she predicted the bursting of the great housing bubble of 1008, “it won’t be pretty.”

Words of Wisdom on the Murr Case

As we do from time to time here we go again, expressing our admiration for the commentary of our colleague and fellow blogger, Robert Thomas, on his blog www.inversecondemnation.com. Here we go:

” . . . Maybe the liberal majority [of the Supreme Court], viewing Murr as the last charge of Wyatt Earp and his Immortals, threw principle to the wind, created a metaphysical, social justice warrior test for property that undercuts a thousand years of common law principles, deprives juries of the opportunity to decide what is and what isn’t reasonable reliance on metes-and-bounds, and takes the power to define property away from both property owners and state and local legislators, and hands it to mostly unelected philosopher-kings in black robes.

“The Murr majority gives lower court judges a chance to play Justice Kennedy for a day and decide what counts as property (for today, but may not be tomorrow, who knows?), all based on what Your Honor believes is fair, or isn’t, or is or isn’t worthy of being compensated, or whether the government can really afford to pay. There will no doubt be a plethora of law review articles which will try and justify these vague . . . factors as based somewhere in our common law property traditions. The authors would have a mighty hard time convincing us, because under Justice Kennedy’s ad hoc-ism, you really don’t know whether you own property until you make a takings claim and some judge decides you deserve to not be compensated when it is impressed into public service.”

We agree, and in fact we have articulated the same sentiments in the past (about property owners not really knowing what they own until after years of costly litigation), but in truth there isn’t all that much that’s new about this view. It was years earlier that the California Supreme Court, speaking in HFH, Ltd. v. Superior Court (1976) admitted that in the end the judicial characterization of a complained of government regulation is a taking or merely the exercise of the regulatory police power is only an act of labeling the results in a particular controversy. Add to that the U.S. Supreme Court’s confession in the Penn Central Transportation Co. case that the intellectually mighty US Supreme Court has been “simply unable” to tell us what is a cause of action in regulatory inverse condemnation law or how to plead it and prove it, and what you have is an intellectual witches’ brew that mocks aggrieved property owners rather than provide them with a discernible path to relief for the violation of their constitutional rights.

Murr — SCOTUS Meets Dick Babcock’s Ghost

So the Murr v. Wisconsin opinion has finally come down, and as predicted by us, it’s an intellectual mess, as must be evident to anyone with some knowledge of eminent domain law, who has read it. We could spend a lot of time surveying the Murr disaster area, but others have begun doing it, so why duplicate their efforts? As we often do, we recommend today’s blog post of our colleague, Robert Thomas in his blog www.inversecondemnation.com for an overview of Murr. Also, check out Roberts’ post of June 26, 2017, for a more in-depth analysis. Here, we concentrate on only one aspect of it. Quoting one passage from Justice Kennedy’s opinion:

“Though a use restriction may decrease the market value of the property, the effect may be tempered if the regulated land adds value to the remaining property, such as by increasing privacy, expanding recreational space, or preserving surrounding natural beauty. A law that limits use of a landowner’s small lot in one part of the city by reason of the landowner’s nonadjacent holdings elsewhere may decrease the market value of the small lot in an unmitigated fashion. The absence of a special relationship between the holdings may counsel against consideration of all the holdings as a single parcel, making the restrictive law susceptible to a takings challenge. On the other hand, if the landowner’s other property is adjacent to the small lot, the market value of the properties may well increase if their combination enables the expansion of a structure, or if development restraints for one part of the parcel protect the unobstructed skyline views of another part. That, in turn, may counsel in favor of treatment as a single parcel and may reveal the weakness of a regulatory takings challenge to the law.” Slip Opinion at 12-13.

But the question of how the taking benefits the owner’s remaining land that is not taken, goes to the measure of compensation, not to liability for the taking. It is basic appraisal lore that only after the value of the taken part of the subject property is determined, and benefits (usually special ones, but sometimes general ones too) to the remainder are determined, that they are deducted from the severance damages (or in some places, from the entire just compensation). That’s how the owner’s net just compensation is determined. Justice Kennedy thus confuses liability with the measure of compensation, and puts the cart before the horse. In other words, first you determine that a taking occurred and then you value the economic harm done to the owner, from which you deduct benefits. But by Kennedy’s lights you first value the harm done, and then — in an amazing feat of circular reasoning — you use that harm to decide whether a taking occurred. Justice Kennedy also forces the owner to try valuation twice — once in what is usually a bench trial for the purpose of determining liability and if successful, once again, this time before a jury, to fix compensation for the taking. With all due respect, this is wasteful of both the parties’ and of judicial time and resources, it violates the judicial economy principle, and accomplishes nothing except maybe placing an unwarranted and illegitimate obstacle in the path of the aggrieved land owners seeking relief from an unconstitutional taking of their land.

We could go on, but in a tour de force of self-restraint, we won’t. Suffice it to say that the Murr majority opinion provides the aggrieved party with a suggested “remedy” that is akin to advising a car driver with a flat tire to change it with a screwdriver, and then to do it again.

All of which brings to mind a bit of history. After the “taking issue” burst upon the legal scene in the 1970s, I had a talk about it with the late Richard Babcock, then the dean of the nation’s land-use bar. Dick was opposed to the damages remedy for regulatory takings, and being from Illinois, a fabled, far-away place where at that time judges actually provided non-monetary remedies, notably what Dick called the “builder’s remedy” whereby a court would invalidate an overreaching land regulation and order the regulators to issue a building permit. The photo below depicts Babcock (left) and your faithful servant, engaged in scholarly discourse concerning the proper remedy for regulatory takings.

His punch line to me was: “You may win a right to ‘just compensation’ for regulatory takings, but even if you do, judges will never allow an actual payment of money to land owners.” Though I thought at the time that he was being unduly cynical by thus questioning the good faith of judges, he turned out to be right on that one — the “taking issue” has been coming up before the US Supreme Court time and again during the past thirtysomething years, but with two exceptions the court never affirmed an actual money judgment against a land-use regulatory agency. Owners’ victories have consisted of invitations to go back and try the whole shebang all over again. Those exceptions were City of Monterey v. Del Monte Dunes, a case of such transparently bad-faith city conduct, that it caused some harsh remarks from the bench to the city’s lawyer during oral argument (by Justice Kennedy, inter alia, come to think about it). The other was the bizarre “California raisins” case where the feds’ trucks pulled up in front of Mr. Horne’s ranch and demanded that he fill them up with some $400,000 worth of raisins without any compensation. The 9th Circuit — who else? — thought this was hunky dory, but the Supreme Court reversed and ordered the feds to cancel the fine they imposed on poor Mr. Horne and to pay him the value of the raisins which had already been determined. No, we are not making this up — see Horne v. USDA.

In one of his law review article, the late Justice Scalia noted that Roman Emperor Nero would issue decrees, but then had them posted on poles so high that no one could read them. The law of takings is sort of like that. The court has established as a matter of principle that when private property is taken by the government, just compensation is payable whether the taking is physical or regulatory. But then it surrounded this basic holding with a thicket of conceptual and procedural obstacles, that make it nearly impossible for aggrieved parties — except perhaps wealthy folks with multi-million-dollar litigation budgets and decades of time to devote to byzantine litigation — to secure enforcement of their constitutional rights under the Fifth Amendment’s “Just Compensation” clause. Indeed in the notorious Penn Central case the court confessed that it has been “simply unable” to articulate any rule whereby to determine when compensation is required, and that it was deciding these cases ad hoc, one by one.

Bottom line: to invoke the insights of another old-time takings law maven, Fred Bosselman: the courts are denying land owners due process of law — they do so by providing too much process, not too little.

Dispatch from La-La land

There is a typical California kerfuffle going on on the California coast near Half Moon Bay (south of San Francisco). A successful tech mogul named Vinod Khosla bought a 90-acre beachfront parcel that the previous owner permitted to be used by the public upon payment of a fee. But upon acquiring the land, Mr. Khosla closed public entry to this beach with expectable consequences. The locals threw a tantrum, demanding that “their” access to Mr. Khosla’s beach be provided.

This being California, the locals demanded that the state acquire the beach and make it public so they can use it. But they ran into several problems. First, no state agency is eager to plunge into this battle, since none has a dog in this fight. The likely candidate for acting as condemnor is the State Lands Commission which lacks the power of eminent domain. So appropriate legislation has been introduced and is pending, But where will the money come from to pay Khosla’s just compensation? Here things take a turn into black comedy. The State thinks of paying $360,000 for 6.4 acres out of Khosla’s 90-acre holding, and it purports to be serious, even though in that part of the state you can’t buy a dog house — literally — for that kind of money, much less a multi-acre beachfront parcel of land. Khosla thinks his parcel is worth $30 million, but the state is allocating $1 million for the acquisition of the 6.4-acre part of it.

In short, this caper has all the makings of another one of those California cases in which a condemnor bites off more than it can chew — like the famous DOT v. So. Cal. Edison case where the state deposited $240,000 for the taking of an Edison transmission corridor only to get hit with a $49.5 million judgment that was summarily upheld by the state Supreme Court.

So let’s stay tuned and see how it all turns out. It should be a good show for eminent domain mavens, and lots of employment for specialized lawyers.

For the latest doings in that controversy, see Angela Hart, California Moving to Seize Public Beach Closed off by Tech Billionaire, Sacramento Bee, June 19, 2017.
http://www.sacbee.com/news/politics-government/capitol-alert/article156697154.html?utm_source=dlvr.it&utm_medium=twitter

What’s Wrong With Regulatory Takings Law? Are Some of these Decisions in Good Faith?

A friend sent us the new opinion of the Florida District Court of Appeal (5th District) in Town of Ponce Inlet v. Pacetta, LLC, Case No. 5D14-4520, filed June 16, 2017. Though probably unintended, this opinion provides an excellent example of what is wrong with regulatory taking law, and reveals that courts can be either incompetent or not acting in good faith when they decide these cases. Here is the opening paragraph of the Pacetta opinion:

“The parties in this case make their third appearance before the court. In this appeal, the town of Ponce Inlet (“Town”) appeals a multi-million-dollar second amended final judgment entered following a jury trial on damages arising from an inverse condemnation claim as well as an earlier order resulting from a bench trial on liability (“liability order”) that found in favor of the Appellees . . .”

So after three trials and opinions by judge and jury, and after three appeals you’d think that courts acting with minimal competence and in good faith would get the issue of liability right Yes? No.

We won’t go through the whole history of this litigation; you should read the opinion if you want to get into the whole megillah. Suffice it say here that this opinion ends with holding against the property owners on their Lucas — complete taking theory — and remands the case to the trial court for yet another trial on liability, and damages (if appropriate). Which seems to us as a deliberate judicial strategy to exhaust the property owner and deplete his resources without ever reaching the elusive “real” merits of the controversy. Legal tradition admonishes lawyers to respect judicial decisions, but this . . .?

A while back your faithful servant wrote an article entitled Hunting the Snark, Not the Quark: Has the U.S. Supreme Court Been Competent in its Effort to Formulate Coherent Regulatory Takings Law? 30 Urban Lawyer307 (Spring 1998). With a title like that you can probably guess that our answer was “No!” But dig it up anyway and read it (or re-read it as the case may be) and see for yourself that our negative assessment of the court’s handiwork in this field rested, and still does, on a sound foundation. It is increasingly apparent that things have gone beyond mere judicial incompetence, and it is increasingly proper to question the judicial good faith in these controversies — if that term may be properly used.

Now, almost two decades later it has become all too clear that the evident judicial rationale in these controversies is frequently not a resolution of legal disputes, but rather the creation of a spider-web-like labirynth in which to trap constitutionally aggrieved, faultless property owners whose “sin” is a desire to use their seemingly constitutionally protected property for socially constructive purposes, like creating badly needed housing. They get taxed on its value for its highest and best use, but as it turns out they can’t use it at all for any economically rational purpose.

And this isn’t just our opinion. Check out the torrent of invective pouring out from the scholarly community, that characterizes judicial performance in this area of law as including characterizations ranging from “worse than chaos” to “deceptive” and “absurd,” uttered by commentators on both sides of the issue. See 36 Urban Lawywr at 702-703.

Legal tradition calls for respecting judicial decisions. But respect has to be earned.

Decline of the Malls – Chickens Coming Home to Roost

A while back we posted an item about cities putting up shopping malls, using public funds (in the form of proceeds of municipal revenue bonds), and we expressed our doubts about the soundness of this practice, being as malls are inherently private commercial enterprises, dressed up as “public use” in order to meet the limitation of the Fifth Amendment to the Constitution. We thought, and still do, that this practice is ridiculous — an anchor department store and its usual gaggle of satellite chain shops is no more of a public use of land than any other privately-owned merchandizing effort.

But the courts have been consistently swallowing such municipal mummery, and rubber-stamping takings private property for such projects as being for “public uses. But in fact, they are — private, not public merchandizing operations misusing the power of government to wrest desired property from its rightful owners for transfer to private developers. But to their credit, not all judges went along with this charade. The highest courts of several states said “No!” California was not among them, but Justice Macklin Fleming, then on the California Court of Appeal delivered a needed lecture about the hazards of such activities in Regus v. City of Baldwin Park, 139 Cal.Rptr. 196, (1977), pointing out the obvious — these were private merchandising operations, not public uses. Quoth Justice Fleming:

“[U]nrestricted use of redevelopment powers fosters speculative competition between municipalities in their attempts to attract private enterprise, speculation which they can finance in part with other people’s money. When the extraordinary powers of legislation designed to combat blight and renew decayed urban areas are used as a fiscal device to promote industrial, commercial, and business development in a project area that is merely underdeveloped rather than blighted, competitive speculation may be turned loose. By misemploying  the extraordinary powers of urban renewal a redevelopment agency captures pending tax revenues which it can then use as a grubstake to subsidize commercial development within the project area in the hope of striking it rich. Such schemes contemplate borrowing money by issuing bonds on the strength of assured future tax revenues, money which is then used to acquire, improve, and resell property within the project area at a loss as an inducement to business enterprises . . . to locate within the project area rather than in neighboring communities. In essence, tax revenues are used as subsidies to attract new business. The immediate gainers are the subsidized businesses. The immediate losers are the taxpayers and government entities outside the project area, who are required to pay the normal running expenses of government operation without the assistance of new tax revenues from the project area.”

”The promoters of such projects promise that in time everyone will benefit, taxpayers, government entities, other property owners, bondholders; all will profit from increased development of property and increased future assessments on the tax rolls, for with the baking of a bigger pie bigger shares will come to all. But the landscape is littered with speculative real estate developments whose profits turned into pie in the sky; particularly where a number of communities have competed with one another to attract the same regional businesses.”

Now, Fleming’s warning has come about. The landscape is now littered with declining and failed malls. Today’s Los Angeles Times, June 4, 2017, at p. B1, carries an article by Steve Lopez, entitled Reimagining the Mall, reporting that while a few malls are still prospering, many others are circling the drain and, faced with growing vacancies, are shutting down. Just as Justice Fleming foresaw, they are falling victim to competition, although the competition is taking the unforeseen form of on-line sales. Who wants to endure the hassle of schlepping to a far-away mall, parking and then, laden with packages like a camel, staggering back to the car for a trip home, when without leaving the comfort of one’s easy chair, one can hit a few computer keys and have one’s purchases delivered to the front door?

So when you get a chance raise a glass and toast the memory of Mack Fleming who saw the future and shared it with us.

One more loose end: will the courts now come to their senses and join the supreme courts of Michigan and Illinois, and say “No!” to further abuses of the power of eminent domain, and sensibly note that the conjectured “public benefits” of building private malls with public funds, to generate private profits, are no more a “public benefit” — and certainly no “public use” — than other ways of transferring public funds into the pockets of well connected types. And who is now going to pay off the outstanding bonds issued in the past by cities to finance all those belly-up malls?

Entertaining New Article

If you are into inverse condemnation in general and inverse condemnation as applied to airport operators in particular, we recommend a new article by Michael Berger who is the foremost inverse condemnation litigator, and who was heard from in every modern airport case heard by the California Supreme Court in recent decades, and in a half-dozen or so non-airport inverse taking cases considered on the merits by the US Supreme Court.

The article is semi-autobiographical, which gives Berger’s writing a nice personal touch — none of the usual opaque professorial babblings in this one. It’s both informative and entertaining. Go to http://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=1969&context=law_journal_law_policy

If you are still using paper, it’s Michael M. Berger, The Joy of Takings, 53 Wash. U. Jour. of Law & Policy 89 (2017)

 

Lebensraum for Muslim Refugees in Germany

A dispatch from Germany has reached us, indicating that the city of Hamburg is expropriating apartments, taking them from their German owners to provide housing for Middle Eastern Muslim refugees who have been pouring into Germany at the rate of hundreds per day, with the blessings of the German government. The apartments will be renovated upon taking, but — get this — the cost of renovation will be charged to current apartment owners. This dispatch is silent on whether anyone — notably the refugees — will be paying any rent to the condemnee-owners. See Soeren Kern, Germany Confiscationg Houses to Use for Migrants, Gatestone Institute, May 15, 2017. See https://mail.google.com/mail/u/0/#inbox/15c071f6459bb092

This bit of Enteignung is complicated by the fact that the apartments in question have been sitting vacant, with no indication as to why their owners were not using or renting them. Also, the German constitution provides for the exercise of eminent domain for public benefit and upon payment of just compensation. So chances are we will hear about this bit of German kleptocracy.

We’re Back!

As you can see, after a couple of weeks of cyber-misadventures, that inexplicably substituted some other completely unrelated blog for Gideonstrumpet.info, we are back on line.

All appears to be well now. Stand by.

 

Lowball Watch — Louisiana

An acquaintance sent us a copy of a judgment which discloses that on a condemnor’s deposit of $335,287, a Louisiana trial court awarded $1,397,500, plus interest on the $1,o62,213 difference. The County of Concordia, or the parish as they call it over there, vows to appeal.

Biglane v. Board of Commissioners, Docket No. 44712-B, judgment filed on April 25, 2017.