The Doctrine of Eminent Domain: Recent Legislative and Judicial Developments in California (Part 1)

December 21st, 2013

Anticipated loss

No legal issue captures the public-private conflict quite like the doctrine of eminent domain, arguably one of the most litigated questions in US constitutional history. Recent legislative and judicial developments in the law on eminent domain in California are testament to the keenness of legislators and judges to clarify and refine the scope and nuances of the doctrine, which has its roots in the Takings Clause of the Fifth Amendment. In this two-part series, we discuss some of these developments, and the impact that they have on the application of the doctrine in California, particularly with respect to the valuation of loss and compensation.

The Fifth Amendment qualifies the Takings Clause – the constitutional basis for the state’s power to seize private property – with (1) public use and (2) just compensation, both of which are crucial to the valid exercise of the state’s eminent domain, and hence inevitably, points of substantial disagreement between private property owners and governmental agencies. With the expansive interpretation accorded to the term “public use” – i.e. the inclusion of “public welfare,” and even the “furtherance of economic development” (Kelo v. City of New London, 545 U.S. 469 (2005)) within its ambit – it is not difficult to foresee the potential for abuse by the government as well as by larger private entities acting in cohort with the government.

It is in this light that the discourse surrounding the issue of “just compensation,” particularly with respect to the valuation of the property sought to be acquired, further highlights the inherent asymmetry in bargaining power between the state and the private individual.

For instance, November 2013 saw a spate of premature suits filed before the California courts, by large banks seeking redressal against an anticipated exercise of eminent domain in respect of mortgages. In both Wells Fargo Bank v. City of Richmond (N.D. Cal., Sept. 16, 2013), and Bank of New York Mellon v. City of Richmond et al. (N.D. Cal., Nov. 6, 2013), the court was presented with two nearly identical cases that sought injunctions restraining the state from exercising its eminent domain in order to refinancing loans which had accumulated balances far in excess of the value of the properties themselves.

Observing that allowing such claims were (a) based on a factual scenario that may or may not eventually take place, i.e. before a dispute had even materialized, and hence (b) absent any imminent, irreparable harm, the court, in both cases, held that judicial intervention in such a case would result in overreach beyond what was necessary to maintain judicial efficiency. Thus, the courts have been unequivocal in mandating that the loss for which just compensation is claimed be “real.” In the aforementioned cases, the judicial determination of real loss hinged on when the loss was incurred; in the following post, we will examine another instance of judicial analysis that leads us to a similar result, albeit in respect of what constitutes “loss” for the purpose of valuation.