Real Estate and Land Use

Supreme Court Clarifies Valuation Rules on Potential for Future Exactions

City of Perris v. Stamper S217738 (Cal. Supreme Court, July 21, 2016)

By Michael M. Berger

Why it matters: The California Supreme Court reexamined the rules for determining the valuation of property taken by eminent domain but subject to potential future dedication exactions. This issue is critical where the property being condemned is currently devoted to less than its highest and best use and the condemning agency wants to value it at that less than optimal value while the property owner seeks valuation at its highest and best use. To determine the proper rule, the Court had to consider how the U.S. Supreme Court's decisions concerning dedication apply to condemnations under California law and also the respective roles of judge and jury. The decision was nearly unanimous, with one partially dissenting opinion.

Legal Background: Several different rules coalesced in this opinion. First, the U.S. Supreme Court established the basic rules for property dedication in Nollan v. California Coastal Comm'n (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374. In the former, it held that, to be valid, a dedication requirement had to have an essential nexus to the burden that the property owner's project would have on the public and that might justify the government in rejecting the proposed development outright. In the latter, it augmented the rule by holding that the dedication had to bear a "rough proportionality" to the project's impact. Second, property taken by eminent domain cannot be increased or decreased in value by the impact of the project for which the property is being acquired. Third, if property would have to be dedicated as a condition of acquiring a development permit, then (if that property is condemned) the property must be valued as undeveloped land. Finally, several issues of judge versus jury determination were presented here, including a basic one on which this Court continued to enforce an erroneous view of what English common law required in 1791 (and thus what the Seventh Amendment guaranteed). The opinion is wrong on the latter issue, but it is still the law in California.

Facts: The property owners acquired an approximately 9-acre rectangular plot of undeveloped land in 1985, with plans to expand their metal fabricating businesses. The business expansion never occurred. Thus, when the city sought to condemn the property a quarter century later, it remained undeveloped. The city planned to relocate a road. For this, it needed a 1.66-acre strip of the owners' rectangle. The complicating news was that it split the rectangle, leaving two triangular-shaped parcels on either side of the new road (one was 5.5 acres and the other was 2 acres). That automatically made the valuation more difficult than if the city simply took a 1.66-acre strip along one side, leaving the remainder intact. The parties stipulated that the agricultural value of the strip was $44,000. The owners sought $1.3 million for the strip by valuing it for its highest and best use.

The Decision: The Court turned first to the decision-maker issue, i.e., whether the various issues were for the judge or the jury. The Court's broad generalization at the outset of its discussion that "[t]he Seventh Amendment to the United States Constitution does not guarantee landowners a jury trial in eminent domain proceedings because no such jury right existed in England or the colonies in 1791" is simply wrong. A summary can be found in the British Court of Appeal decision in De Keyser's Royal Hotel Ltd. v. The King (1919) [waiting for attachment] 2 Ch. 222 (surveying English practice from 1708 to 1798). For expanded discussion, see former Manatt counsel Gideon Kanner's recent Daily Journal article, "Our Eminent Right to a Jury" (8/10/2016). Notwithstanding that the Court got it wrong, that will obviously be the law enforced by California courts.

The Court then recited the standard California rule that the California Constitution guarantees a jury only on the issue of compensation, while other issues are for the judge. Thus, if there are mixed questions of law and fact, to which analysis needs to be applied, those questions will be decided by the judge. They are, said the Court, like issues of "means-ends scrutiny" that courts are used to making in constitutional adjudication and to which juries are not well suited. Thus, unless the dedication issues (as laid down in Nollan and Dolan) involve pure facts that will lead to the valuation conclusion, the issues are for the judge.

The Court then dealt with the interplay of a statutory restriction on eminent domain and a judicial explication. The statute is Code of Civil Procedure Section 1263.310, which says that the fair market value of property taken shall not be affected—either up or down—by the impact of the project for which the property is being acquired. The judicial gloss came from City of Porterville v. Young (1987) 195 Cal.App.3d 1260, holding that if the city could lawfully have required a dedication of land in order to permit development, then the land so required is valued at its undeveloped state. The Court combined the rules this way: if a city claims that it would have made a Porterville demand for a dedication, the trial judge must determine whether such a demand was in place before it was probable that the property would be condemned. If so, then the dedication is an effect of the project and must be disregarded for valuation.

Practice Pointers:

  • Most preliminary fact determinations leading to valuation will be made by the judge.
  • As difficult as the Nollan and Dolan rules can be to apply in an ordinary dedication scenario, they become more complex in the condemnation context because of the split between judge and jury.
  • What the government did and when it performed each act will be important in determining how to value the property condemned.

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"Plan Bay Area" Sustainable Communities Strategy Upheld

Bay Area Citizens v. Association of Bay Area Governments (2016) 248 Cal.App.4th 966

By Robia Crisp

Why It Matters: The adequacy of the first Sustainable Communities Strategy (Plan Bay Area) adopted by the Bay Area Metropolitan Transportation Commission and the Association of Bay Area Governments (together, the Agencies) was upheld by the Court of Appeal. The court rejected Petitioner Bay Area Citizens' (Citizens) CEQA challenge to the EIR, concluding that it was premised on a misinterpretation of SB 375's requirements, and holding that the EIR correctly excluded state-mandated emissions reductions in developing strategies to meet SB 375's emissions targets.

Facts: On July 18, 2013, the Agencies adopted Plan Bay Area, the updated regional transportation plan and first sustainable communities strategy for the nine-county Bay Area region, and certified the Plan Bay Area EIR. Plan Bay Area was adopted pursuant to SB 375, enacted in 2008, which created a framework to link transportation and land use planning to reduce greenhouse gas emissions from motor vehicle trips, and directed the California Air Resources Board (CARB) to set regional targets for reducing GHG emissions for each of the state's regional planning agencies. In 2008, CARB issued its Scoping Plan, and in 2010, issued its GHG reduction targets for the Bay Area region. Plan Bay Area establishes a plan for reducing GHG emissions through combined land use and transportation strategies believed to meet the required per capita percentage reductions (7 percent by 2020 and 15 percent by 2035, as compared to emissions in 2005). The strategies, prepared in consultation with CARB and to be implemented by individual cities and counties, included land use intensification around transit corridors.

The Plan Bay Area EIR evaluated the Plan's ability to meet regional targets, anticipated changes in GHG emissions by 2040, and compliance with Executive Orders S-3-05 (calling for an overall reduction of GHG emissions to 1990 levels by 2020 and to 80 percent below 1990 levels by 2050) and B-16-2012 (outlining benchmarks for 2015, 2020 and 2025 related to getting zero-emission vehicles on the road, and establishing a goal of an 80 percent reduction of GHG emissions from the transportation sector in California by 2050 as compared to 1990 levels). The EIR's analysis of the Plan's ability to meet the regional targets excluded any benefits from legislation requiring state-mandated emissions reductions from new passenger vehicles, light-duty trucks and non-commercial vehicles sold in California, or from low carbon fuel requirements.

Citizens filed a petition challenging the certification of the EIR, arguing that it failed to adequately identify the Plan's basic objectives, failed to adequately assess a "No Project" alternative by relying on an "obviously outdated baseline," failed to include a reasonable, feasible alternative to Plan Bay Area, and failed to respond to Citizens' proposed alternative plan. Citizens asserted that the Agencies imposed unnecessary land use plans on the Bay Area in order to meet the Board's 2020 and 2035 emissions reduction targets and improperly ignored the GHG emissions reductions expected from statewide mandates. Citizens argued that the Agencies should have adopted, or at least considered, an alternative plan so as to avoid Plan Bay Area's "draconian" and "unnecessary" land use and transportation strategies.

The Decision: In affirming the trial court's judgment upholding Plan Bay Area and the EIR, the Court of Appeal rejected all of Citizens' arguments as being premised on the mistaken position that SB 375 requires regional agencies to include GHG emission reductions expected to occur from legally mandated statewide vehicle technology improvements and the low carbon fuel standard in developing their plans to meet regional targets set by CARB. At the outset, the court summarized its decision as follows:

Citizens relies on the premise that the Legislature, via SB 375, launched a major new climate protection initiative requiring regional agencies to develop regional land use and transportation strategies through an elaborate planning process that in the end would be superfluous because the agencies could meet [CARB's] regional emissions reduction targets simply by invoking reductions already expected from pre-existing statewide mandates. This interpretation makes no sense. And it is contradicted by SB 375's emphasis on regional innovations, the Legislature's declarations and findings, and the Board's contemporaneous construction of the statute. Further, even apart from the regional focus of SB 375 and the Legislature's declarations and findings, the Legislature conferred on the Board broad discretion to develop targets and require regional agencies to meet them through regional planning. It was within the Board's discretion to require regional agencies to achieve emissions reductions entirely through regional planning strategies so as to produce regional emissions reductions beyond those produced by statewide mandates.

The opinion provides a lengthy and detailed discussion of the statewide mandates leading up to SB 375, California's GHG emissions reductions laws and regulations and the Agencies' development, environmental review, and adoption of Plan Bay Area. However, the primary issue was whether SB 375 allowed the Agencies, in developing their regional plans and in determining whether they met CARB's regional targets, to rely on emissions reductions already expected from preexisting statewide mandates to fulfill their statutory obligation, rather than adopting regional strategies to reduce emissions beyond those already expected from the statewide mandates. The court concluded the Agencies correctly declined to rely on the expected reductions. Thus, the EIR's description of Plan Bay Area's basic objectives adequately disclosed its goals, including its limitation to considering GHG emissions reductions achieved through the plan's combined land use and transportation pattern, not the statewide mandates.

With respect to Citizens' argument that the EIR did not adequately assess a "No Project" alternative, the EIR's climate change impact analysis included consideration of the statewide mandate under a "Criterion 2" (whether the Plan will cause a net increase in direct and indirect GHG emissions in 2040 compared to existing conditions) and a "Criterion 3" (whether the plan would substantially impede attaining GHG goals under specified executive orders). The court concluded that the Agencies' consideration of the statewide mandates in this manner was entirely appropriate. The EIR's failure to incorporate updated modeling to account for more recent technical changes in the state mandates was not feasible and did not implicate a core aspect of Plan Bay Area and was "legally irrelevant to meeting the Board's SB 375 targets."

The court further concluded that Citizens' proposed alternative, the "Bay Area Citizens Transportation and Housing Alternative," was not feasible under SB 375. Citizens' proposed alternative relied heavily on greenhouse gas emissions expected from the statewide mandates. Because this way of meeting SB 375 targets did not comply with SB 375, it was infeasible and the Agencies were not required to consider it. Citizens also failed to establish that the Agencies abused their discretion in responding to its comments, which were also based on a misinterpretation of SB 375. Judged against a rule of reason, the EIR's analysis of the "No Project" and three other alternatives was sufficient.

Finally, the court affirmed the trial court's judgment based on separate and independent grounds argued by the Attorney General as amicus curiae. The court held that while Citizens ostensibly challenged the Agencies' CEQA methodology for failing to sufficiently consider the statewide mandates, they did not explain why, given the extensive disclosures and analyses contained in the EIR, the Agencies were required to further discuss the statewide mandates in order to comply with CEQA. Regardless of SB 375's and CARB's requirements, the EIR provided sufficient disclosures about the Agencies' methodologies, their consideration of the statewide mandates, the environmental impacts of Plan Bay Area, project alternatives and more. The court agreed with the Attorney General that Citizens' arguments amounted to a substantive attack on the wisdom of Plan Bay Area itself, and that "while Citizens 'may think it is unwise to take an ambitious approach to reducing greenhouse gas emissions through regional and local efforts, rather than relying primarily on projected reductions expected from statewide measures, that disagreement is not the basis of a CEQA challenge when the Agencies conducted appropriate analyses and disclosed them in the EIR.' "

Practice Pointers:

  • This decision affirms that regional agencies may not rely on projected emissions reductions from preexisting statewide mandates in order to meet CARB's regional greenhouse gas emissions targets when preparing plans required under SB 375.
  • To the extent that Citizens' chief complaint is with the substance of the plan, the decision affirms that CEQA litigation is not an appropriate avenue to address or challenge legislative policies.

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General Plan Amendment Eliminating Minimum Density Standards Is Subject to CEQA

People for Proper Planning v. City of Palm Springs (2016) 247 Cal.App.4th 640 (partially published)

By Brandon D. Young

Why It Matters: The Fourth District Court of Appeal reversed a trial court decision finding that a general plan amendment eliminating minimum density requirements for all residential developments in a municipality was not exempt from CEQA.

Facts: Under its General Plan, the City of Palm Springs designated minimum and maximum densities for residential units in each land use category. In certain circumstances, the General Plan expressly provided applicable minimum density requirements. In others, the General Plan did not set any minimum density. According to the General Plan, the density requirements represented the minimum "anticipated" amount of density. Density, however, could not exceed the General Plan requirements.

In 2013, the City approved a General Plan amendment (Amendment) eliminating all minimum density requirements across residential land use categories. According to the resolution implementing the Amendment, the change was consistent with "past and current practice . . . to consider only the maximum density allowed within each land use category." The City concluded the Amendment was exempt from CEQA under a Class 5 categorical exemption for "minor alterations in land use limitations in areas with an average slope of less than 20%, which do not result in any changes in land use or density . . . ."

A citizens group, People for Proper Planning (PFPP), filed a legal challenge to the City's determination that its action was exempt from CEQA. PFPP also asked the court to set aside the Amendment as being inconsistent with the General Plan and state law restricting cities from reducing residential densities or allowing residential development of any parcel at lower residential densities.

The Decision: The court's analysis began with whether the Class 5 categorical exemption applied. The City argued that since the proposed change reflected past and current practice, there was no change to existing density standards. However, the court observed, "[b]ecause the Amendment does not retain existing density minimum standards on its face, it apparently results in a change to land density." The court reasoned that, "[w]hile the Amendment does not reduce the maximum allowable density for residential areas, its elimination of the minimum allowable density changes the density range, effecting a lower average density for residential areas . . . ." The court concluded that the City erred in relying on the Class 5 exemption.

Under CEQA, even if a categorical exemption might be applicable, before relying on that exemption, the agency must determine that the proposed project does not fall within one of CEQA's "exceptions" to use of an exemption. In this case, the court also considered whether—assuming that the City could rely on the categorical exemption—the Amendment fell within the "unusual circumstances" or "cumulative impact" exceptions to an agency's use of an exemption. PFPP presented "sufficient evidence" to support a fair argument that the Amendment would result in a "significant impact" on the environment due to its "across-the-board change in land use regulation." With somewhat limited analysis, the court found that the Amendment was "capable of causing significant cumulative impacts on the City's stock of high-density, low and moderate income housing due to its elimination of the minimum density allowances." The court also determined that PFPP presented "sufficient evidence" to support a fair argument that the Amendment would result in a "significant impact" on the environment due to its "across-the-board change in land use regulation." And thus, the court held that use of the categorical exemption was improper.

In addition, the court held that "[p]ermitting low-density residential development in areas previously set aside for high-density projects will necessarily reduce the range of housing types, prices and opportunities available in the City to the frustration of the General Plan's goal of facilitating a broad range of housing types." Notably, the City argued that its practice of interpreting the General Plan as not mandating minimum densities meant that the Amendment did not change the existing environmental baseline. However, the court found that "[o]nce the City adopted the General Plan in 2007, the General Plan itself provided the baseline for future projects," not the City's contrary practice.

Practice Pointers:

  • Amendments to the General Plan impacting a broad range of land use regulations will be scrutinized with regard to the availability of CEQA exemptions.
  • The specific provisions of a General Plan will take precedence over contrary practices, even if long-standing, in determining an environmental baseline for CEQA purposes.

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