Inverse Condemnation Action: Do Takings Claims Survive Transfer of Title?

A California trial court recently dismissed an inverse condemnation action in a case that raises important questions about property rights and standing. The decision in NCP Imperial v. L.A. County, 2022 Cal. Super. LEXIS 60513 illustrates a troubling scenario where the government may avoid paying just compensation simply because of when a property changed hands.

What Is an Inverse Condemnation Action?

An inverse condemnation action alleges that private property has been taken for public use without just compensation. When a plaintiff wins, they receive a condemnation valuation case. Most inverse condemnation opinions involve dismissals of “regulatory takings” claims—which one court aptly described as a “regulatory-takings doctrine is a mess.”

Physical occupation cases are rare in inverse condemnation litigation. The government typically offers to pay just compensation before physically taking private property for public use. That’s what makes the NCP Imperial case so unusual.

The Underground Sewer Line Discovery

The NCP Imperial case involves a physical occupation that should have been straightforward—but wasn’t. The complaint alleged that California installed a 78-inch subterranean storm sewer line under a portion of the subject property in 1968. In 1976, the State conveyed the property to IBM without reserving rights to continue occupying or using the property for flood control purposes.

The plaintiff purchased the property in February 2018 without knowledge of the underground 78-inch diameter sewer line. After closing, they discovered the massive underground infrastructure, which substantially frustrated their redevelopment plans.

The plaintiff immediately notified defendants to stop using the property for their project, arguing the ongoing use was causing damage to the property’s development potential. Defendants conceded the 78-inch pipe was essential and necessary but claimed they didn’t have an easement interest in the property. Plaintiffs alleged defendants had effectively taken a de facto permanent easement over portions of the property for flood control purposes.

The Standing Question

Defendants moved to dismiss based on lack of standing. They argued the current owner couldn’t sue because they didn’t own the property when the taking occurred. The Court agreed, holding that “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.” This is a compelling point. The owner likely argued that the statute of limitations commenced upon discovery of the underground pipeline after closing in 2018. The trial court rejected this argument and appears to have adopted both standing and statute of limitations rationales in its holding.

Why This Decision Is Problematic

Property owners must have standing to allege a taking by physical occupation—that’s clear. But there’s something fundamentally wrong with allowing the State to capture a windfall because it failed to properly record its interest in property it later sold without notice of the defect.

The U.S. Supreme Court has been clear on this point: “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).

In Palazzolo v. Rhode Island, 533 U.S. 606 (2001), the Supreme Court stated: “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 Supreme Court decisions cast a serious shadow over the NCP Imperial decision. The distinction between “notice” in Palazzolo and “no knowledge” in NCP Imperial is significant. When a property owner has zero notice of a governmental taking, denying them standing creates a loophole that rewards governmental negligence in documenting property interests.

Implications for Property Owners

If you’re wondering can you fight eminent domain or similar takings issues, the NCP Imperial case suggests timing matters more than it should. Property owners need to conduct thorough due diligence before purchasing property, including investigating any potential underground infrastructure or easements. Even then, undocumented governmental takings may go undetected until after closing.

For property owners facing these issues, consulting with an eminent domain attorney New Jersey or a qualified attorney in your jurisdiction is essential. These cases involve complex questions of standing, statutes of limitations, and constitutional property rights.

Property disputes don’t end with takings claims. Owners may also need assistance from a property tax lawyer for valuation issues or guidance through the NJ property tax appeal process if assessments don’t account for property limitations. In some cases, regulatory issues like New Jersey short-term rental laws may further complicate property use and development plans.

What’s Next?

Perhaps there will be appellate review of the NCP Imperial decision. An appellate court might reconcile the trial court’s holding with Supreme Court precedent that protects subsequent purchasers’ takings claims. Until then, property owners and purchasers should remember: caveat emptor—let the buyer beware.

The case highlights the importance of comprehensive title searches, surveys, and investigations into potential governmental interests in property. It also demonstrates how jurisdictional differences can affect property rights in takings cases.

Take Action on Your Property Rights

Facing a takings claim or eminent domain issue?

Don’t navigate complex property rights disputes alone. Our experienced attorneys understand inverse condemnation, regulatory takings, and property valuation issues. We’ll help you protect your property interests and pursue the compensation you deserve. Schedule your consultation.