Eminent Domain Report

For those of you who have followed Nossaman’s eminent domain blog since the very early days, you’ll recall our coverage of a significant regulatory takings case, Monks v. City of Rancho Palos Verdes.  The 2008 California decision received much press coverage in that it was one of the very few instances where property owners overcame the myriad substantive and procedural obstacles and succeeded under a regulatory takings theory.  Now, ten years later, another group of property owners in Rancho Palos Verdes attempted to pursue a similar regulatory takings claim on the back of Monks, but got lost in the procedural maze along the way.  In Black v. Rancho Palos Verdes (Sept. 6, 2018 Cal. Ct. Appeal 2nd Dist.), the California Court of Appeal issued a published decision denying eight property owners' takings claim on the ground that the owners failed to exhaust their administrative remedies before pursuing litigation.

The litigation has an extremely long history.  The short story is that the City issued a landslide moratorium which generally prohibited new development in a landslide area, which was later modified to allow development subject to a property owner's completion of a geotechnical survey -- at a cost of between $500,000 and $1 million -- which satisfied certain safety factors.  The Monks Court concluded the exception was insufficient to avoid a taking and it was improper to require an owner to spend such a significant sum just to be told no use could be made of the property.  The City then repealed the moratorium and allowed the plaintiffs to develop their property.

In Black, the plaintiff property owners filed a takings claim, but never pursued an application for development, instead believing no such process was required based upon the prior findings in Monks.  The Court of appeal disagreed, concluding that the owners were still required to exhaust their administrative remedies.  The "futility" exception noted in Monks is extremely narrow and requires a property owner to pursue at least some development proposal.  Absent such an attempt, there is no way to know whether a governmental agency will allow a development.

The Court held that in Black, there was no evidence that the City would have denied the property owners' application, and relying on statements from the City after the filing of litigation was improper:  the record establishing futility should be established before filing suit.  With respect to the administrative expense, the owners did not face the same Monks experience of incurring extraordinary costs for the geotechnical survey; instead, they faced the expense of hiring architects and engineers, which the Court indicated were not unusual expenses in seeking to develop a property.

Black serves as a reminder of the importance of property owners pursuing development applications and exhausting administrative remedies before rushing off to court to pursue a takings claim.  It also highlights the limited applicability of the "futility exception" in avoiding administrative exhaustion.  Without pursuing such development efforts, a property owner is likely to get its regulatory takings claim stuck in the procedural maze.