In its second major eminent domain opinion in as many months, the California Supreme Court in City of Perris v. Richard C. Stamper (S.Ct. No. S213468), issued on August 15, 2016, deals with two issues:  First, is it the role of a judge or a jury to make the preliminary determination of whether a public dedication requirement affecting valuation in an eminent domain case is constitutional?  Second, to what extent does such a dedication requirement constitute a “project effect” which must be ignored in determining the value of condemned property.  The 50 page opinion, complete with a concurrence and dissent by Justice Cuellar, is thorough and comprehensive.

A little background to set the context:  The City of Perris sought to condemn a 1.6 acre strip through the middle of defendant’s property in order to build a road.  The property was undeveloped agricultural land, but the property owner argued that he should be compensated based on the highest and best use of the property, namely light industrial land.  The City responded that any development of the property to light industrial use would trigger a requirement by the City that the same strip of land be dedicated for road construction.  Thus, the rule articulated in City of Porterville v. Young (1987) 195 Cal.App.3d 1260, applied: when a city takes a portion of undeveloped property that it would have lawfully required the owner to dedicate to the city as a condition of developing the remainder of the property, the owner is entitled to compensation based on the undeveloped state of the property (here, agricultural), rather than its highest and best use.

In concept, this makes sense.  If a property owner would be required to dedicate a portion of his (agricultural) property to the city in order to achieve its highest and best use (light industrial), why should he be compensated for that portion of property as if it was light industrial?  In that circumstance, the property should be valued based on the existing and less valuable (agricultural) use of the property.

Of course, a city can’t require dedications whimsically.  Rather, it must conform to constitutional requirements that the dedication have “an essential nexus” to a valid public purpose and be “roughly proportional” to the impact of the proposed development at issue.  These requirements protect a property owner against a city “extorting” concessions of property or money in return for development approvals, when those concessions have no relationship to the impacts of the project proposed.  If a proposed dedication cannot satisfy constitutional requirements, it could never be applied and the Porterville rule would not come into play.  The question in Perris v. Stamper was, who decides whether the proposed dedication is constitutional, the judge or the jury?

The Court noted that although the federal constitution does not guarantee a jury trial in eminent domain proceedings, the state constitution does.  However, this guarantee applies only to the question of compensation, not other preliminary determinations such as whether a taking has occurred or whether the requirements for compensation are met.  The question of whether a proposed dedication meets constitutional muster is such a preliminary determination and involves a constitutional “means-ends” analysis, which judges are well suited to perform.  Therefore, it is for the judge to decide whether the dedication is constitutionally permissible, and that inquiry is analytically distinct from the factual question of whether the dedication would have probably been imposed if defendants had sought development approvals.  If the answer to either of these questions is no, the Porterville rule will not apply and the property is valued based on its highest and best use.

A second and related issue addressed by the Perris v. Stamper court is whether the “project effects” doctrine, codified in Code and Civil Procedure section 1263.30 and requiring exclusion of the effect of the government’s project on property value, encompasses dedication requirements.  The Court held that when a dedication requirement is put in place after it becomes probable that the property subject to the dedication will be included in the government’s project, the project effect rule applies and the Porterville rule does not.  The Court articulated the “probable inclusion test” as follows: “at the time the dedication requirement was put in place, (1) the government was engaging in a project – that is, a public work the government intended to pursue – for which it intended to acquire property by purchase or condemnation, if necessary, as opposed to a contingent plan to mitigate possible development on adjacent property through dedication; and (2) it was probable the property at issue would be included in that project.”  If those circumstances exist, “the project effect rule applies and the Porterville doctrine does not.”  Thus, is a wholly factual issue, apparently to be decided by the jury.

Justice Cuellar concurred on the first holding but dissented on the second holding, apparently unhappy with the complexity of the rule formulated by the Court, and uncertain how it would apply in real life.  In fairness to Justice Cuellar, the “project effect” rule articulated does read like the product of committee.  Justice Cuellar would have applied a simpler test, effectively folding in the “project effect” analysis, namely:  a judge would decide if the constitutional requirements for a dedication were met, and if so, a jury would determine whether it was “reasonably probable” that the city, even in the absence of the project for which the property is condemned, would have required the dedication.  If either of these elements could not be satisfied, then the city’s condemnation of the property could fairly be characterized as a part of its proposed project, and the purported dedication requirement would be excluded from consideration under the project effect rule.

However, the majority carried the day and so trial courts and litigants are left with a slightly more complicated analysis: Initially, (1) decide if the “project effects” rather than Porterville rule applies, by determining if the dedication requirement was put in place before it was probable that the property to be condemned would be included in the government’s project; then, (2) decide if the asserted dedication requirement meets constitutional muster under the essential nexus/rough proportionality analysis, and if it does, (3) the jury determines whether it is “reasonably probable” the dedication requirement would actually have been applied if development approval had been sought.