Just Compensation Under California Law for Temporary Severance Damages and Impairment of Access

• Jurisdiction: California,United States
• Author: Daniel Mansueto
• Publication year: 2016
• Citation: Vol. 34 No. 3

Just Compensation Under California Law for Temporary Severance Damages and Impairment of Access

Daniel Mansueto

Daniel Mansueto is Counsel at Zuber, Lawler & Del Duca. From 2005 to 2015 he was Deputy Attorney at the California Department of Transportation.

In eminent domain and inverse condemnation litigation, an issue commonly arises as to whether the owner of a commercial property is entitled to recover for disruption occurring during the course of the construction of a public project. The disruption typically results from drilling and excavation, storage of materials and heavy equipment, road closures, and/or detours. The property owner will sometimes claim that such disruption, due to impairment of access or for other reasons, will cause (a) lost rents, (b) lost business revenues, and/or (c) diminution in the value of the property. In addition, owners of nearby commercial properties the public entity is not acquiring may make analogous claims on an inverse condemnation theory. This article discusses if and when these types of eminent domain and inverse condemnation claims are compensable under California law. In the course of doing so, it also delineates when permanent impairment of access resulting from the finished project or a permanent street closure is compensable.

I. OVERVIEW OF JUST COMPENSATION RIGHTS

Article I, section 19 of the California Constitution entitles an owner whose property is taken or damaged for a public use to be paid "just compensation, ascertained by a jury unless waived."

A. Eminent Domain

The Eminent Domain Law, found in Title 7 of the Code of Civil Procedure, governs a public entity's lawsuit to acquire, through eminent domain, all or part of a property for a public use.¹ The statutory definition of "just compensation"² includes compensation for "injury to the remainder" when the property acquired is part of a larger parcel.³ "Injury to the remainder" is commonly referred to as "severance damages."⁴ In eminent domain cases, a property owner's claim for injury occurring during construction of a project is sometimes referred to as a claim for "temporary severance damages."⁵ However, as discussed in Part III.D below, the right to compensation for injury occurring in the course of construction of a public project derives from case law applying the constitutional just compensation requirement and not the statutory provisions governing "injury to the remainder."

B. Inverse Condemnation

The law of inverse condemnation governs just compensation claims that a plaintiff-property owner asserts in circumstances not involving direct acquisition of the owner's property through the process of eminent domain (where, for example, the project impacts properties that are near the project but that are not being acquired). "The principles which affect the parties' rights in an inverse condemnation suit are the same as those in an eminent domain action."⁶ However, significant procedural distinctions exist between eminent domain cases and inverse condemnation cases. One is that in eminent domain cases, a public entity is the plaintiff, while in inverse condemnation, cases the property owner is the plaintiff.⁷ A second is that the statutory scheme governing eminent domain actions indisputably applies to eminent domain actions.⁸ If and how the scheme applies to inverse condemnation cases may depend on the particular statute at issue.⁹

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II. THE GENERAL STANDARD: SUBSTANTIAL AND UNREASONABLE INTERFERENCE

Three California Supreme Court cases, read together, establish that injury occurring during the course of the construction of a public project is actionable in at least the following circumstance: when the construction activity substantially and unreasonably (i.e., unnecessarily) interferes with the actual or intended use of a property such that the property owner realizes a loss relating to such use (e.g., a sale of the property is thwarted or is made at a reduced price). The three supreme court cases that establish this are Heimann v. City of Los Angeles,¹⁰ People v. Ayon, and Metropolitan Water District v. Campus Crusade for Christ.¹¹

In its 1947 Heimann opinion, the California Supreme Court first established the "unreasonable and substantial" standard for temporary interference claims. Heimann involved an inverse condemnation claim arising from the construction of a viaduct. The plaintiff, who owned two properties that fronted on the viaduct, sought to introduce evidence "of various elements of alleged temporary damage suffered over the 1940—1942 period of construction work, as distinguished from the permanent depreciation in the market value of the property caused by the existence of the viaduct . . . ."¹² The claimed elements of the "temporary damage" arose from an alleged "unreasonable delay of sixteen months in the performance of the construction work, and an alleged loss of use over the 1940—1942 period due to the piling of earth, rock, and other materials in the streets and the erection of saw mills, sheds, and other structures, the accumulation of waste materials and rubbish on and near . . . the premises, the partial obstruction and closing of streets, and the like."¹³ The supreme court ruled that the trial court erred in excluding evidence of the foregoing. The supreme court found that "redress should take place" for "an unnecessary and substantial temporary interference with . . . property rights [attendant upon ownership] or an actual though temporary invasion of the right of possession of private property during construction . . . ."¹⁴

Thirteen years after its decision on Heimann, the California Supreme Court gave further definition to the Heimann "unreasonable interference" standard in its opinion in Ayon. In Ayon, the supreme court equated "unreasonable interference" with "unnecessary interference," which the court characterized as interference that was not occasioned by actual construction work.¹⁵ Ayon is an eminent domain case that included a temporary severance damage claim premised on impairment of access during the period of construction. Ayon did not, however, address whether or not the claimed interference was unnecessary or otherwise unreasonable. Instead, the supreme court found that the claimed interference was speculative because it had not yet occurred.¹⁶

In 2007, in Campus Crusade for Christ, the California Supreme Court addressed what evidence of damages is required to sustain a temporary severance damages claim in an eminent domain case. In Campus Crusade for Christ, the property owner sought to recover both permanent and temporary severance damages. It sought temporary severance damages for the "adverse impact of the project on its ability to use, develop and market its property during the seven-year period of construction."¹⁷ The trial court allowed the property owner "to present evidence of construction related damages if those damages were excessive and beyond the ordinary annoyances associated with a public works project."¹⁸ The trial court however granted a motion in limine "to exclude evidence of such damages, observing that '[t]he time period of construction may result in severance damages as to rental losses, for example, but not as to marketability.'"¹⁹

The California Supreme Court in Campus Crusade for Christ found that the property owner had not identified specific evidence to support its temporary severance damage claim.²⁰ In particular, it found that the property owner had "not identified any intended use of the property during the relevant period, nor has it identified any specific loss attributable to the delay in construction."²¹ However, the supreme court indicated that the property owner may have a claim if there were a sale of the property and the sale was at a lower price as a result of ongoing construction.²² In doing so, the supreme court emphasized that there had to be a sale that realized the loss: "If [the property owner] had sold the property during the construction period and if the ongoing construction had temporarily lowered the sales price of the property, it would appear that [the property owner] would be entitled to recover that loss from [the public entity]."²³Citing Ayon, the supreme court indicated that the property owner on remand could attempt to present evidence of "actual injury" to support its temporary severance damages claim.²⁴

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In sum, then, California Supreme Court case law establishes that for disruption during public project construction to be compensable, the construction must interfere with the actual or intended use of a property such that the property owner realizes a loss relating to such use (e.g., a sale of the property is thwarted or is made at a reduced price).

III. FOUR COMMON QUESTIONS RELATED TO PUBLIC PROJECT CLAIMS

In applying the "unreasonable and substantial" interference standard to claims for injury occurring during the construction of a public project, certain questions repeatedly arise. The most common include the following: (A) In the context of eminent domain, when can a property owner recover for damage that may occur during construction if the eminent domain case precedes the construction?; (B) When impairment of access is claimed, what set of facts constitutes "substantial" impairment and what set of facts constitutes "unreasonable" (i.e., "unnecessary") impairment?; (C) What types of lost revenues are compensable—revenues derived from land only (e.g., rents) or business losses (e.g., lost sales) as well?; and (D) Is temporary diminution in value resulting from construction disruption compensable?

A. Eminent Domain: When Can a Property Owner Recover for Temporary Severance Damages If the Construction Occurs After the Eminent Domain Case?

In the context of eminent domain temporary severance damages, courts must seek to achieve a balance between the prohibition on speculative damages and the doctrine of res judicata. The impetus to speculate arises when, as is often the case, the eminent domain case...