Do Takings Claims Survive Transfer of Title?

by: Joseph Grather
21 Dec 2022

Read an interesting opinion by a California trial court dismissing an inverse condemnation action.NCP Imperial v. L.A. County, 2022 Cal. Super. LEXIS 60513

An inverse condemnation action alleges that private property has been taken for public use without just compensation.  A prevailing plaintiff gets a condemnation valuation case.  The majority of the “inverse” opinions I read are dismissing “regulatory takings'”claims. See, e.g. “regulatory-takings doctrine is a mess.

It is rare that an inverse case involves a physical occupation.  Probably because the government usually offers to pay just compensation before it physically takes private property for public use.

The NCP Imperial case involves a physical occupation.  Easy peasy, right?  Wrong!

The complaint alleged that the State of California had installed a 78″ subterranean storm sewer line under a portion of the subject property in 1968.  Subsequently, in 1976, the State conveyed the subject property to IBM without reserving a right to continue to occupy or use the property for flood control purposes, i.e. the underground sewer line.  The plaintiff purchased the subject property in February of 2018 without knowledge of the underground 78″ diameter sewer line.

After closing, Plaintiff discovered the underground 78″ sewer line, which substantially frustrated its plan to redevelop the property.  Plaintiff immediately “notified Defendants to stop using the Subject Property for Defendants’ project and that the ongoing use is causing damage to Subject Property including development potential, and Defendants have refused. (FAC ¶24.) Plaintiffs allege Defendants have conceded the 78″ RCP is an essential and necessary component of the Project and they do not have an easement interest in and to the 78″ RCP. (FAC ¶¶25-26.) Plaintiffs allege Defendants have effectively taken a de facto permanent easement over portions of the Subject Property for flood control purposes….”

Defendants moved to dismiss on the basis that the current owner did not have standing because it did not own the property when the taking occurred.  The Court agreed – “Plaintiffs do not have standing to sue for a taking since that occurred over 40 years before they purchased the property.”  The owner argued the motion “confuse[s] the legal principles of standing with statute of limitations.”  I tend to agree with this statement, and deduce that the owner argued that the statute of limitations commenced upon “discovery” of the underground pipeline after closing in 2018.  The trial court obviously did not agree and appears to have adopted both rationales in its holding.

A property owner must have standing to allege a taking by physical occupation. There is something fundamentally wrong with allowing the State to capture a windfall b/c it failed to properly record its interest in property that it later sold without notice of the defect.  “The State, by ipse dixit, may not transform private property into public property without compensation.” Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U. S. 155, 164 (1980); see also Palazzolo v. Rhode Island, 533 U.S. 606 (2001) (“The Takings Clause is not so quixotic. A blanket rule that purchasers with notice have no compensation right when a claim becomes ripe is too blunt an instrument to accord with the duty to compensate for what is taken.”).  These decisions from the U.S. Supreme Court, at a minimum, cast a shadow over the NCP Imperial decision.

Perhaps there will be appellate review? Meanwhile, caveat emptor!