REDEVELOPMENT AGENCY OF THE CITY OF BURBANK, Plaintiff and Respondent, v. WALTER L. GILMORE, JR., et al., Defendants and Appellants.
L.A. No. 31891
Supreme Court of California
June 13, 1985
15 Cal.3d 813 | 126 Cal.Rptr. 473 | 543 P.2d 905
Irsfeld, Irsfeld & Younger, O‘Neill & Huxtable, Richard L. Huxtable and Francis H. O‘Neill for Defendants and Appellants.
John Briscoe, Sandi L. Nichols, Thomas B. Brown, Washburn & Kemp, Fadem, Berger & Norton, Michael M. Berger, Parkinson, Wolf, Lazar & Leo, Richard B. Wolf and Michael W. Connally as Amici Curiae on behalf of Defendants and Appellants.
William B. Rudell, City Attorney, and Richard W. Marston, Senior Assistant City Attorney, for Plaintiff and Respondent.
Robert F. Carlson, Gordon S. Baca, Charles E. Spencer, Jr., Gerald J. Geerlings, County Counsel (Riverside), Peter H. Lyons, Principal Deputy County Counsel, Jay G. Vickers, Deputy County Counsel, Kenneth L. Nelson, County Counsel (Santa Barbara), James B. Lindholm, Jr., County Counsel (San Luis Obispo), Donald S. Greenberg, City Attorney (San Buenaventura), K. Duane Lyders, City Attorney (Oxnard), James F. Rupp, Jr., City Attorney (Port Hueneme), Roger Picquet, City Attorney (San Luis Obispo), Mark G. Sellers, Acting City Attorney (Thousand Oaks), Dankert & Kuetzing, Thomas M. Dankert, Murray O. Kane, R. Bruce Tepper, Jr., Kathryn Reimann and Weiser, Kane, Ballmer & Berkman as Amici Curiae on behalf of Plaintiff and Respondent.
OPINION
GRODIN, J.—We confront an issue created by the sharp rise in market rates of interest during recent years. When a public agency con
FACTS*
Defendants Walter L. Gilmore, Jr., Pamela A. Gilmore, George W. Strattan, Howard L. Hudson, and Frances P. Hudson appeal from the respective judgments entered against them in this eminent domain action. Howard and Frances Hudson also appeal from the order denying their motion to recover litigation expenses and the order granting plaintiff‘s motion to tax costs.
On November 13, 1980, plaintiff Burbank Redevelopment Agency filed its complaint seeking condemnation of a parcel of real property owned by George Strattan and the Gilmores (parcel 9) and a separate parcel of real property owned by the Hudsons (parcel 11). In both cases, plaintiff invoked the so-called “early possession” or “quick-take” provisions of the Eminent Domain Law. Under that procedure, a condemning agency may take over condemned property prior to trial and judgment by depositing in court the “probable compensation” as determined by appraisal (
When the “quick-take” procedure is used, the final award of compensation draws “legal interest,” commencing when the agency took possession or when it was authorized to do so, whichever is earlier, and continuing until final payment. (
The legal rate of interest on judgments was 7 percent until July 1, 1983. (
On December 9, 1980, plaintiff deposited $200,000 toward parcel 9 and $160,000 toward parcel 11; the court thereupon issued orders authorizing plaintiff to take possession of both properties. Each order became effective 90 days after service—March 16, 1981, for parcel 9 and March 18, 1981, for parcel 11. An additional $125,590 was deposited on February 16, 1982, on account of parcel 9. Defendants withdrew the full amounts of their respective deposits.3
Later, at trial, the value of parcel 9 was fixed at $500,000. The value of parcel 11 was determined to be $284,000. Both amounts substantially exceeded the deposits previously made for the respective parcels. Defendants urged that they were entitled to market interest on the balances due. They introduced extensive and uncontradicted evidence about prevailing rates, during the period since plaintiff had gained possession of parcels 9 and 11, for mortgages, prime business loans, certificates of deposit, government and utility bonds, and government notes of various terms. All the representative rates were well above the 7 percent “legal” rate then in effect.4
The trial court also admitted Mr. Gilmore‘s declaration about costs the Gilmores had incurred in replacing parcel 9. The declaration stated that the
On June 30, 1982, an interlocutory judgment was entered as to parcel 11, awarding the Hudsons $124,000—the difference between plaintiff‘s deposit of $160,000 and the final assessed value of $284,000. Interest on this balance due was to accrue “at the legal rate” from March 18, 1981, the possession date for parcel 11, until final payment. On July 21, 1982, a similar judgment was entered as to parcel 9, awarding Strattan and the Gilmores $173,410—the difference between the two original deposits totalling $326,590 and the final assessed value of $500,000. Any balance due after March 16, 1981, the date of possession for parcel 9, was to accrue interest, again at the “legal” rate of 7 percent, until paid.
DISCUSSION
I.
Defendants renew their argument that when condemned property is taken before payment, interest on the balance due must be computed with reference to the prevailing market rate in order to provide constitutional “just compensation.” (See
The governing principles are well established. In Seaboard Air Line Ry. v. U. S. (1923) 261 U.S. 299 [67 L.Ed. 664, 43 S.Ct. 354], the United States Supreme Court explained that when private property is taken for public use, “[t]he just compensation to which the owner is constitutionally
Therefore, if the government pays for condemned property only after taking and using it, the owners “are entitled to have the full equivalent of the value of [its] use at the time of the taking paid contemporaneously with the taking.” (Phelps v. United States (1927) 274 U.S. 341, 344 [71 L.Ed. 1083, 1085, 47 S.Ct. 611], italics added.) An award in the nature of interest “at a proper rate” is a “fair and reasonable” reimbursement for the deferred payment. (Seaboard, supra, 261 U.S. at p. 306 [67 L.Ed. at p. 670]; see also Albrecht v. United States (1947) 329 U.S. 599, 602-603 [91 L.Ed. 532, 537-538, 67 S.Ct. 606].) This element of “just compensation” is constitutionally required and “cannot be made to depend upon state statutory provisions.” (Seaboard, supra.)
California‘s Eminent Domain Law provides for interest on a delayed condemnation award but limits interest to the legal rate. (
Many courts have recognized that, while the statutory rate of interest may apply if it is constitutionally adequate, ultimate determination of the rate of interest required for “just compensation” is a judicial function. An adequate rate, these cases hold, must reflect conditions in the usual interest markets. (E.g., Miller v. United States (Ct.Cl. 1980) 620 F.2d 812, 837-838; United States v. 429.59 Acres of Land (9th Cir. 1980) 612 F.2d 459, 464-465; Blankinship, supra, 543 F.2d at pp. 1275-1276; King v. State Roads Com‘n of State Hwy. Admin. (1983) 298 Md. 80 [467 A.2d 1032, 1037-1038]; Matter of City of New York (1983) 58 N.Y.2d 532 [449 N.E.2d 399, 401-402]; Marine Midland Bank, N.A. v. State (1983) 118 Misc.2d 472 [460 N.Y.S.2d 902, 903-904]; Department of Transp., etc. v. Rasmussen (1982) 108 Ill. App.3d 615 [64 Ill.Dec. 119, 439 N.E.2d 48, 58]; State by Spannaus v. Carney (Minn. 1981) 309 N.W.2d 775, 776; Textron, Inc. v. Commissioner of Transp. (1978) 176 Conn. 264 [407 A.2d 946, 947-948]; of Wayne in County of Passaic v. Cassatly” cite=“137 N.J. Super. 464” pinpoint=“550-551” court=“N.J. Super. Ct. App. Div.” date=“1975“>Township of Wayne in County of Passaic v. Cassatly (1975) 137 N.J. Super. 464 [349 A.2d 545, 550-551].)7
A recent, unanimous United States Supreme Court decision suggests acceptance of the principle that constitutionally proper interest must reflect market conditions. In Kirby Forest Indus., Inc. v. United States (1984) 467 U.S. 1 [81 L.Ed.2d 1, 11, 104 S.Ct. 2187], the court affirmed that interest is compensation for the delay between taking and payment, necessary to place the condemnee “in as good a position pecuniarily as he would have occupied if the payment had coincided with the appropriation. [Citing Phelps, supra, 274 U.S. at p. 344 (71 L.Ed. at p. 1085), and Seaboard, supra, 261 U.S. at p. 306 (67 L.Ed. at p. 670).]” In a normal “straight condemnation” proceeding, said the court, where the government does not take possession and title until after judgment and full payment, the “taking” and the compensation are contemporaneous. Hence, no interest is due on the award. (467 U.S. at p. 10 [81 L.Ed.2d at pp. 11-12].)
The court noted, however, that the rule is otherwise under the “quick-take” provision, which allows the government to obtain title and possession before a final condemnation judgment is rendered and paid. In such cases, said Kirby, the landowner is constitutionally entitled to interest on any delayed payment “sufficient to ensure” a monetary position as favorable to him as if payment and taking had coincided. (Id., 467 U.S. at p. 10 [81 L.Ed.2d at p. 11].) In a footnote, the court explained that this principle of “full and perfect” financial equivalency (see Seaboard, supra, 261 U.S. at p. 304 [67 L.Ed. at p. 669]) “underlies several decisions by courts of appeals, holding that the 6 per cent rate of interest prescribed by [the federal condemnation statute] is not a ceiling on the amount that can and must be paid by the Government. [Citations.] The United States has acquiesced in those decisions. . . .” (467 U.S. at p. 11, fn. 16 [81 L.Ed.2d at p. 11], italics added.)
Plaintiff and its amici point to decisions suggesting that the California statute‘s provision for interest at the legal rate is intended simply as a reasonable measure of damages for lost use of the property during the period between public possession and final payment, where no other evidence of such damages is introduced. (E.g., Pierpont Inn v. State of California (1969) 70 Cal.2d 282, 299-300 [74 Cal.Rptr. 521, 449 P.2d 737]; Metropolitan Water Dist. v. Adams (1940) 16 Cal.2d 676, 680-681 [107 P.2d 618]; City of San Rafael v. Wood (1956) 144 Cal.App.2d 604, 608 [301 P.2d 421].) But the Supreme Court‘s more recent remarks in Kirby make clear that interest is constitutionally compelled as reimbursement for lost use of money due as compensation for the property, but not paid contemporaneously with the taking.10
Plaintiff and its amici suggest that decisions imposing prevailing-rate interest under the “quick-take” provisions of the federal condemnation law are inapposite to California practice. They urge that California‘s “quick-
Technical differences do exist between the state and federal schemes. Under the federal “quick-take” provision (
By contrast, California‘s “quick-take” law provides only for an “order of possession” upon deposit of estimated value. (
Yet any distinctions between the state and federal systems are not of constitutional significance in determining the date of taking. The “title” which vests in the United States under the federal quick-take statutes is a “defeasible” one; a federal condemnee, like his California counterpart, may still litigate the government‘s right to exercise the power of eminent domain against his property. (Catlin, supra, 324 U.S. at p. 241 [89 L.Ed. at p. 920].) Thus, except for absolute foreclosure of the government‘s right to abandon under the federal law, the rights obtained and lost under the state and federal quick-take procedures are essentially the same.
Moreover, the California statutes themselves suggest an assumption that a constitutional taking occurs no later than the moment at which the public agency obtains the right of early possession. While the normal valuation date is either the date of commencement of proceedings, or of com
These sections give effect to the fact that, except for defenses to the exercise of eminent domain, a landowner in California is permanently deprived of all of his rights in property sought by a public agency when the agency exercises its option to deposit estimated value and obtain early possession for the intended public use.11 We conclude, therefore, that a constitutional taking occurs at this time. Accordingly, “just” compensation is the “full and perfect” monetary equivalent of the fair market value of the land paid at the time the taking occurred. (Seaboard, supra, 261 U.S. at p. 304 [67 L.Ed. at p. 669].) Interest at a rate reasonable in light of market conditions is the proper measure of reimbursement for any delay in payment.
Plaintiff and its amici urge that the California statute, unlike the federal, assures “just compensation” in ways other than interest, since it provides for such elements of damage as loss of business goodwill. (
It is suggested that the “deposit increase” feature of the Eminent Domain Law is an adequate safeguard against efforts to make the condemnee an involuntary below-market lender. The statute declares that the condemner “or . . . any party having an interest in the property” may move at any time to increase the original deposit to a level which more accurately reflects probable value. (
This provision may minimize the condemnee‘s involuntary financing burden, and it may discourage manipulation of the deposit amount by the condemner in inflationary times. However, it does not address the Constitution‘s requirement that the condemnee receive “just compensation” on any loan he is forced to make. However small the difference between deposit and award, the condemnee is constitutionally entitled to the monetary equivalent of that difference paid contemporaneously with the taking. (See authorities cited supra.) Constitutional equivalency, we must conclude, is measured by interest at the prevailing market rate.13
II.
We have ruled that the just compensation clause is not necessarily satisfied when a rate of interest set by statute is applied as a ceiling in condemnation cases. We must therefore decide what formulas and procedures courts should apply in determining a constitutional rate of return when, as here, statutory guidelines are inadequate.
The Gilmores urge that the interest awarded should reflect their costs of borrowing funds necessary to secure replacement property. We disagree. The compensation constitutionally due is the “full and perfect” monetary
The decisions generally concur that constitutionally acceptable interest on a condemnation payment which is delayed until after taking should bear some relationship to rates the condemnee could have achieved by investing the funds if they had been paid at the time of the taking. Beyond this, there is little consensus as to how, and by whom, that rate should be determined.
The majority of state and federal cases have indicated that, since interest is an element of just compensation, its calculation is a matter for the guided discretion of the trial court, case by case. A test often stated is the rate which would have been earned by ” ‘a reasonably prudent person investing funds so as to produce a reasonable return while maintaining safety of principal.’ ” (Washington Metro. Area T.A. v. One Parcel of Land (4th Cir. 1983) 706 F.2d 1312, 1322; 429.59 Acres of Land, supra, 612 F.2d at p. 465; King, supra, 467 A.2d at pp. 1038-1039; Freilich, supra, 665 P.2d at p. 1006; Laurel, Inc. v. Commissioner of Transp. (1980) 180 Conn. 11 [428 A.2d 789, 805]; Carney, supra, 309 N.W.2d at p. 776.)
Since a prudent investor would diversify his interest portfolio, some opinions suggest that the trial court should consider prevailing rates, during the period of delay, for investments of varying length and risk. Typically, these have included short, medium, and long-term government and corporate obligations. (E.g., 429.59 Acres of Land, supra, 612 F.2d at p. 465; United States v. 319.46 Acres of Land More or Less (W.D.Okla. 1981) 508 F.Supp. 288, 290.)
Theories of interest compensation are almost as numerous as the cases considering them. Some decisions declare that, since government is a low-risk debtor, the condemnee is entitled only to the rates at which the government borrows, not to those prevailing on higher-risk corporate investments. (E.g., Blankinship, supra, 543 F.2d at p. 1277.) Others say that the government‘s cost of borrowing, as such, cannot determine just compensation
The United States Court of Claims has stressed that case-by-case calculation at the trial level of just-compensation interest subverts the important principle of uniformity among litigants entitled to interest for the same time periods. Hence, that court has established, at the appellate level, binding rates applicable in all cases for particular calendar years. The rates are derived from trends revealed by Moody‘s Composite Index of Yields on Long Term Corporate Bonds. (Miller, supra, 620 F.2d at p. 840; Tektronix, Inc. v. United States (Ct.Cl. 1977) 552 F.2d 343, 352-353, cert. den. (1978) 439 U.S. 1048 [58 L.Ed.2d 707, 99 S.Ct. 724]; Pitcairn, supra, 547 F.2d at pp. 1120-1124.)
Absent specific statutory guidance, we are persuaded that the “prudent investor” principle is a sound basis for calculation of interest as just compensation. This doctrine seems best suited to give the condemnee the “full and perfect” monetary equivalent of a timely cash payment for his property, thus placing him “in as good a position pecuniarily as he would have occupied if the payment had coincided with the appropriation.” (Kirby, supra, 467 U.S. at p. 10 [81 L.Ed.2d at p. 11].)
We have declared that the Constitution, in principle, prohibits government from forcing a condemnee to finance acquisition of his property at “a ‘legal’ rate which may be far below the rate the [acquiring] agency would have to pay in its usual financial markets for the same funds.” (Ante, p. 802.) Despite its superficial appeal, however, we do not accept the view of some federal cases that the market rate payable should be geared exclusively to that at which the condemning agency could have borrowed the unpaid funds in its usual financial markets.
Under the just compensation clause, the cost of a public enterprise must be distributed fairly between the displaced landowner and the taxpayers. Nonetheless, there are at least two difficulties with the government-rate analysis. In the first place, unpaid condemnation awards are sui generis and difficult to compare with other obligations of local agencies, such as bonds, in terms of risk, real rate of return, and the like.15
In the second place, one whose land was forcibly taken by a public agency on the basis of a deficient cash deposit is no “prudent investor” who has evaluated the risk and benefits of extending credit to the government for the balance due. Rather, he is an involuntary lender to a debtor he would often prefer not to have. For this reason, the risk of any difference between the rates the government would normally pay, and those the condemnee could have achieved by prudent participation in the broader market, should fall on the former. (Cf., Miller, supra, 620 F.2d at p. 839.)
This works no undue hardship on the agency. As we have seen, the Eminent Domain Law was not intended to make condemnees the unwilling financiers of public acquisitions. It directs an agency seeking early possession to deposit a realistic estimate of “probable compensation,” based in most cases on an expert appraisal. (
Case-by-case calculation of prevailing-rate interest does add another burden to the trial court‘s already tedious condemnation responsibilities. It also permits the application of inconsistent rates to similarly situated condemnees. However, as prior decisions have observed, there is no need for trial of the interest issue to become the tail that wags the dog. Many published services track money-market trends with great precision and accuracy. Examples include the publications of Moody‘s Investors Service and the comprehensive monthly Federal Reserve Bulletin. Such documents are subject to judicial notice in the trial court‘s discretion. (See
In any event, our cursory review of statistical data in the instant record suggests that the trends in the relevant money-market rates tend to parallel each other, and that the range between the lowest and the highest is rarely extreme.20 Hence, we do not foresee gross disparities in the interest results reached by different trial courts for a particular time period.
Here, the trial court refused to consider defendants’ prevailing-rate evidence because it considered itself absolutely bound by the statutory rate. We will therefore remand to the trial court for a determination what the constitutionally proper rate or rates of interest are for the period between taking and final payment in each of these cases.21
III.
Howard and Frances Hudson filed a memorandum of costs and disbursements listing attorney‘s fees and appraisal fees as recoverable items. They also moved for recovery of those items as litigation expenses pursuant to
The Hudsons contend that those rulings were erroneous because the award was significantly higher than the highest offer made by plaintiff. The Hudsons rely on County of Los Angeles v. Kranz (1977) 65 Cal.App.3d 656
Thus, the mathematical relation between the plaintiff‘s highest offer and the award is but one factor to be considered by the trial court under the new statute. Section 1250.410 requires the court to evaluate the reasonableness of the plaintiff‘s offer in light of the award and the evidence adduced at trial. The trial court‘s determination of that issue is a resolution of a question of fact and will not be disturbed on appeal if supported by substantial evidence. (See City of El Monte v. Ramirez (1982) 128 Cal.App.3d 1005, 1009, 1014 [180 Cal.Rptr. 690].)
Although appellants have supplied us with a reporter‘s transcript of the hearing on the motions for recovery of litigation expenses and to tax costs,
That portion of the judgment involving parcel 11 that awards the Hudsons interest at the legal rate is reversed and remanded for a determination of the constitutionally proper rate of interest, according to the principles set forth in this opinion, for the period between the taking of that parcel and final payment therefor. The judgment involving parcel 11 is otherwise affirmed. That portion of the judgment involving parcel 9 that awards the Gilmores and Strattan interest at the legal rate is reversed and remanded for a similar determination of constitutionally proper interest applicable to that parcel. The judgment involving parcel 9 is otherwise affirmed. The order granting the motion to tax costs is affirmed. The order denying the Hudsons’ motion to recover litigation expenses is affirmed.
Kaus, J., Broussard, J., and Reynoso, J., concurred.
MOSK, J.—I concur.
The majority abandon the statutory rate of interest in eminent domain taking, on a theory that the constitutional requirement of just compensation necessarily demands an interest rate higher than that arbitrarily established by law. I agree that the majority reach the proper result in today‘s inflationary economy.
Inflation, however is not an immutable fact of life. Economists tell us money and its value are subject to cyclical swings. As John Kenneth Galbraith wrote, “nothing, not even inflation, is permanent.” (Galbraith, Money (1975) p. 3.)
If the statutory rate of interest does not apply when the market rate is higher, does it apply when the market rate dips below the figure prescribed by law? The majority, in footnote 13, deliberately sidestep that issue. Since we are declaring a new rule, I believe we have a duty to discuss its general applicability.
A condemnee is entitled to just compensation. (
With that understanding, I concur in the majority opinion.
Bird, C. J., and Agliano, J.,* concurred.
Notes
Defendants, basing their argument primarily on the federal Constitution, have assumed that the California Constitutional limit on judgment interest (