In An Eminent Domain Proceeding, Lenders’ Withdrawal Of Funds Without Objection From Property Owner Does Not Result In A Waiver Of Property Owner’s Rights

In Los Angeles County Metropolitan Transportation Authority v. Alameda Produce Market, LLC (— P.3d —-, Cal., November 14, 2011), the California Supreme Court considered in an eminent domain proceeding whether a property owner’s right to contest the taking was waived. The public entity contended that the owner’s right to challenge the taking was waived when lenders with liens against the property withdrew a portion of the deposit of probable compensation, made by the public entity, and the owner did not object to the withdrawal.

In a unanimous decision, the Court ruled that the law provides that such a withdrawal constitutes a waiver of rights to contest the taking by the persons receiving such payment. Since the lenders received payment, and the property owner did not, the Court ruled that only the lenders’ rights were waived. The fact that the owner failed to object to the withdrawal did not result in a waiver of the owner’s right to object to the taking.

Facts

In 2004, the Los Angeles County Metropolitan Transit District (“MTA”) initiated eminent domain proceedings to take property owned by Alameda Produce Market, Inc. (“APMI”) to use for parking of a newly expanded bus fleet. Pursuant to California’s “Quick Take” procedure, MTA applied for immediate possession of the property and deposited with the court a payment of $6.3 million as the probable amount of compensation for the property. APMI objected to the proposed taking.

Shortly thereafter, three lenders with liens against the property – VCC Alameda, Namco Capitol Group, and California National Bank (“Lenders”) – applied to the court for a withdrawal of a portion of the deposit equal to the amount owed them by APMI, a combined $6.1 million. MTA eventually agreed to the withdrawals and APMI did not object to them. The court granted the Lenders’ applications to withdraw the funds. APMI never applied to withdraw any of the funds.

In 2006, the trial court entered an order dismissing MTA’s eminent domain complaint, finding that it had failed to engage in meaningful negotiations with APMI. In 2008, the court entered a final order requiring MTA to relinquish the property to APMI within 90 days. MTA argued that APMI, by failing to object to the Lenders’ withdrawals, had waived its right to challenge the taking. The court rejected that argument ruling that APMI had committed no affirmative act sufficient to constitute a waiver. The Court of Appeal reversed the judgment ruling that APMI’s failure to object to the Lenders’ withdrawals did constitute a waiver. APMI appealed that ruling to the California Supreme Court.

Decision

The Court’s ruling hinged on the wording of Code of Civil Procedure Section 1255.260, which specifies the circumstances under which a withdrawal from a deposited amount in an eminent domain proceeding waives a party’s right to continue to contest the taking. Section 1255.260 reads: “If any portion of the money deposited pursuant to this chapter is withdrawn, the receipt of any such money shall constitute a waiver by operation of law of all claims and defenses in favor of the persons receiving such payment.”

Here, the Court found the Lenders were “persons receiving such payment,” but APMI was not. “In this case, none of the deposited funds were delivered to, and placed in the hands of APMI.” Nor did APMI ever take possession and control or accept custody of any of the funds. “Thus APMI was not a person receiving such payment as those words are commonly understood,” the Court concluded.

MTA’s argument that APMI’s rights were waived because it benefited from the payment when its debts to the Lenders were paid off does not apply. Such an interpretation would require the Court to change the words “persons receiving such payment” in Section 1255.260 to “persons receiving the benefit of such payment,” the Court said. “Doing so would violate the cardinal rule that courts may not add provisions to a statute.”

Further, Section 1255.260 has no provision linking the failure to object to the withdrawal of funds to a waiver of the right to contest the proceeding. By failing to object to the withdrawal, the owner only waives any claim against the public entity for compensation to the extent of the amount withdrawn. The failure to object does not amount to a waiver of all of the owner’s claims and defenses including the right to object to the taking.

The Supreme Court ruled that because APMI was not a person receiving payment from the withdrawal, and it did not waive its right to contest the eminent domain proceeding, the Court of Appeal erred in holding to the contrary. The Court reversed the judgment and the matter was remanded for further proceedings.

Questions

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