No Inverse Condemnation Claim Where City Threatened But Did Not Proceed With Plans For Condemnation

A Court of Appeal recently held that a landowner failed to state a claim for inverse condemnation against a city that planned to take the landowner’s property but ultimately decided to not go forward with eminent domain proceedings. (Joffe v. City of Huntington Park (— Cal.Rptr.3d —-, Cal.App. 2 Dist., November 9, 2011)).

Facts

Ashley Joffe (“Joffe”) owns real property in the City of Huntington Park (“City”). Joffe operates a furniture manufacturing business, Plycraft Industries (“Plycraft”), on the property. Plycraft’s furniture is made to order and requires long and predictable lead times between when a customer places an order and when the furniture is finished. In 2002, City began expressing its intent to acquire 80 acres to develop 920,000 square feet of buildings to house shops and restaurants. City’s plan included the acquisition of the property on which Plycraft is located.

City ordered an appraisal of Joffe’s property and a relocation analysis for Plycraft. City asked Joffe to obtain an appraisal so that they could enter into negotiations. City and the developer erected large signs near Joffe’s property announcing the project. City communicated to Joffe that it would acquire the property either voluntarily or involuntarily.

Plycraft claims that because of City’s actions, it was unable to conduct its business as necessary to remain profitable. Without the certainty that Plycraft could keep its current location, it could not ensure completion of its orders. As a result, Plycraft was unable to procure orders. Plycraft’s profitability deteriorated to the point that it was unable to pay its rent obligation. As a result, Plycraft’s goodwill was lost and it was forced out of business. Joffe could not find other tenants for the property because the term of occupancy was uncertain due to City’s expressed intent to acquire the property in the future.

City failed to proceed with the acquisition of Joffe’s property. Joffe and Plycraft (collectively, “Joffe”) brought a lawsuit against City for inverse condemnation. The trial court found in favor of City on the ground that Joffe failed to show City ever made an announcement of its intent to condemn Joffe’s property.

Decision

The Court of Appeal affirmed the decision of the trial court. An inverse condemnation claim arises where government action causes private property to be taken or damaged but the governmental entity fails to institute eminent domain proceedings. In order to prevail on an inverse condemnation claim, Joffe was required to show that (1) City acted improperly by unreasonably delaying an eminent domain action against Joffe after making an announcement of its intent to condemn or by otherwise acting unreasonably prior to condemnation; and (2) as a result of City’s action, Joffe’s property suffered a diminution in market value. The Court of Appeal held Joffe failed to meet the first prong of this test.

The Court held City never announced its intent to condemn Joffe’s property. A public entity’s precondemnation announcement of a plan to acquire property will not subject the public entity to liability. Liability for inverse condemnation can only attach when the conduct of the public entity moves from the planning stage to the acquiring stage.

Also, in order to successfully state a claim against City, Joffe was required to show City’s interference with this particular piece of property was “special and direct” and that City singled it out for unique treatment in contrast to the other property owners who will be injured by City’s proposed project. A large portion of the conduct Joffe cited in support of his claim for inverse condemnation is in fact general planning that caused no interference with the property at issue. City’s actions in erecting signs to announce the project and stating in a grant application that it was willing to proceed with the project affected over 200 parcels and any injury caused by these actions was not specific to Joffe.

Additionally, City’s actions in having the property and business appraised, requesting that Joffe also obtain an appraisal, and telling Joffe that he would either have to sell the property to City or City would take it by eminent domain failed to trigger liability because none of these actions went beyond the planning stage. A public entity cannot bring an eminent domain action until it adopts a resolution of necessity but it cannot adopt a resolution of necessity until after it makes an offer to purchase the property for no less than its appraised fair market value. The Court rejected the argument that once an appraisal is made that a public entity’s conduct has moved from the planning stage to the acquiring stage. No offer had been made to Joffe for the property.

Joffe argued the unique nature of Plycraft’s furniture business, which required orders to be made months in advance, satisfied the special and direct interference requirement. Joffe claimed Plycraft lost business because it had to tell customers that it could not guarantee delivery due to City’s plans to acquire the property. The Court rejected this argument and concluded City did not interfere with Joffe’s use of the property.

The Court further concluded Joffe cannot state a cause of action for “unreasonable precondemnation conduct.” There is no evidence City acted intentionally to decrease the fair market value of the property or to prevent Joffe or Plycraft from using the property. The Court also held that Joffe failed to state claims for equitable and promissory estoppel.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Jeffrey L. Massey or William T. Chisum | 916.321.4500

Jon E. Goetz | 805.786.4302