City of San Diego v. Neumann

*758 MOSK, J.—

I

I dissent.

The majority engage in hand-to-hand combat with California case law on severance damages, and by assiduously distinguishing cases on their facts, dismissing language as unfortunately broad, and questioning whether earlier opinions really meant what they said, arrive at the doubtful conclusion that the rule they adopt is not precluded by precedent. Startling by its absence is reference to any California authority that actually supports the rule adopted by the majority, that is, that mere potential future unity of use may be the basis for a claim of severance damages.

My own contrary view depends not only on an examination of the California case law regarding the precise issue presented, but also on a consideration whether the rule adopted by the majority is reasonable and just in the broader context of the law of eminent domain. That law seeks to accommodate a tension between the right of the state, necessary to government and community life itself, to condemn property for public use, and the right of the individual landowner to be compensated when the state appropriates his or her land. A rule that permits the landowner who retains his or her land to claim entitlement to compensation because of a thwarted plan to speculate in the real estate market fails to achieve equilibrium between public and private interests.

Defendants do not claim any present damage to the remainder in this case. They can use their remaining land precisely as they have always done. Instead, they want the government, with its deep pocket, to be the guarantor that they will realize the opportunity, but face none of the risk of the market. They want the government to pay them for what the market for developed property would pay for land they still own, even though they have taken no risk in seeking to develop their land and have no firm plans to do so. The balance of interests required by the law of eminent domain, to say nothing of the real estate market, is disturbed when we require compensation for such a speculative claim from the government—read: taxpayers.

Furthermore, the majority fails to provide a clear rule in an area of law in which clarity and predictability are particularly important. Rather, it provides a loose standard that will permit, and indeed encourage speculative claims of damage. A standard that awards compensation for an “intended use [that] is reasonably probable in the reasonably foreseeable future” (maj. *759 opn., ante, at p. 757) provides neither property owners nor government bodies responsible for urban planning sufficient guidance to make rational economic choices.

II

California law securely establishes that present unity of use is a prerequisite to any claim of entitlement to severance damages.

Severance damages are to be awarded when the land taken by a public entity is part of a larger parcel or tract, and the land remaining to the owner has been damaged by the condemnation. (Sharp v. United States (1903) 191 U.S. 341, 352 [ 48 L.Ed. 211, 215 , 24 S.Ct. 114 ] [hereafter Sharp]; 8 Witkin, Summary of Cal. Law (9th ed. 1988) Constitutional Law, § 1022 et seq.; 4A Nichols on Eminent Domain (3d ed. 1969) § 14B.02.)

Severance damages are intended to compensate the owner for diminution in the value of his or her remaining land that is caused by a condemnation that destroys the integrity of a unified parcel or tract of land. (Sharp, supra, 191 U.S. at p. 354 [48 L.Ed. at pp. 215-216].) The basic concern to compensate for the destruction of the integrity of a parcel of land produced the traditional rule that damage to the remainder is compensable if there is unity of title, unity of use, and, ordinarily, contiguity between the taken property and the remainder. ( Sharp, supra, 191 U.S. at pp. 354-356 [48 L.Ed. at pp. 215-216]; United States v. 57.09 Acres of Land (9th Cir. 1983) 706 F.2d 280, 281 , and cases cited; City of Los Angeles v. Wolfe (1971) 6 Cal.3d 326, 330 [ 99 Cal.Rptr. 21 , 491 P.2d 813 ], and cases cited; Hemmerling v. Tomlev, Inc. (1967) 67 Cal.2d 572, 577 [ 63 Cal.Rptr. 1 , 432 P.2d 697 ]; Oakland v. Pacific Coast Lumber etc. Co. (1915) 171 Cal. 392, 398 [ 153 P. 705 ]; People ex rel. Dept. Public Works v. Fair (1964) 229 Cal.App.2d 801, 804 [ 40 Cal.Rptr. 644 ]; see Note, Landlord and Tenant and Severance Damages in Street Widening Cases (1929) 18 Cal.L.Rev. 31, 32; 8 Witkin, Summary of Cal. Law, Constitutional Law, supra, § 1023, p. 590; 4A Nichols on Eminent Domain, supra, § 14B.03[1].) Common ownership alone, then, is not enough to entitle the owner to severance damages. (Railway Co. v. Southern Pac. Co. (1936) 13 Cal.App.2d 505, 520-521 [ 57 P.2d 575 ].)

Code of Civil Procedure section 1263.410, 1 regulating the award of severance damages in this state, requires that when “the property acquired [by eminent domain] is part of a larger parcel,” in addition to compensation for the property actually taken, the owner must be compensated for the *760 injury to the land he or she retains. Contrary to the claim of the majority, California cases establish that the “larger parcel” referred to in this section is defined at the time of the taking; potential future unity of use cannot be relied upon to establish that condemning part of a larger parcel has damaged the remainder.

We have consistently cautioned that severance damages are not to be based upon speculation regarding the future. In a case decided in 1866, we recognized that the exercise of the power of eminent domain may cause compensable damage to the landowner’s remaining adjacent land, and that, unfortunately, “[w]hat shall be the measure of compensation to the owner of land taken for public use, is involved in considerable confusion in the decisions of Courts on the subject.” (S.F., A & S. R.R. Co. v. Caldwell (1866) 31 Cal. 367, 374-375 .) We warned, however, that the measure of damages should not include “conjectural or speculative estimations of consequential damages or benefits.” (Id. at p. 375, italics added.)

In 1915 we cautioned against taking an expansive view of severance damages, declaring that it is only when the “take” is truly part of a larger parcel that severance damages may be awarded for the remainder. (Oakland v. Pacific Coast Lumber etc. Co., supra, 171 Cal. at p. 398 .) In that case, the remainder was not actually contiguous with the taken parcel, being a lumber mill separated by several hundred feet from the wharf and lumberyard property that was condemned. Although there was clearly unity of use between the two properties, as the lumberyard and wharf served the mill, we rejected a liberal interpretation of the concept of “larger parcel” as used in former section 1248 (the predecessor of current § 1263.410). We concluded that to indulge in such a construction would end in allowing compensation for business losses caused by condemnation, rather than loss to the value of the real property. (Oakland v. Pacific Coast Lumber etc. Co., supra, 171 Cal. at pp. 398-399.)

We warned against the introduction of evidence of speculative severance damages again, cautioning in colorful terms that if such evidence were permitted, “it would be quite permissible for the witnesses to say, ‘if oil were discovered upon the land it would be worth twenty thousand dollars an acre,’ ‘if a gold mine were discovered upon it it would be worth ten thousand dollars an acre,’ ‘if a man wanted to buy it and establish a town site it would be worth three thousand dollars an acre,’ and so on, until such inquiry in a condemnation suit would bear a close affinity to Lord Dundreary’s famous question, ‘If you had a brother would he like cheese?’ ” (Oakland v. Pacific Coast Lumber etc. Co., supra, 171 Cal. at p. 400 .)

Lower courts have gone beyond cautioning about speculative claims and expressed the view that severance damages are limited to land put to a *761 current unified use. In the much cited case of City of Stockton v. Marengo (1934) 137 Cal.App. 760 [ 31 P.2d 467 ], the Court of Appeal refused to allow severance damages for land used for a gas station because the rest of the parcel had consistently been used for farming. The court explained that “ ‘[t]o constitute a unity of property between two or more contiguous but prima facie distinct [that is, subdivided] parcels of land, there must be such a connection or relation of adaptation, convenience and actual and permanent use as to make the enjoyment of the parcel taken reasonably and substantially necessary to the enjoyment of the parcels left, in the most advantageous and profitable manner in the business for which they are used.’ ” (Id. at p. 766, italics added and deleted.) Because the two uses were separate, the remainder was not subject to severance damages when the land was divided by the condemnation of a strip of land for a new road. The language quoted above has frequently been reiterated in later cases, so that our courts have consistently stated that actual unity of use is required. (See, e.g., People ex rel. Dept. Public Works v. International Tel. & Tel. Corp. (1972) 22 Cal.App.3d 829, 834-835 [ 99 Cal.Rptr. 836 ]; People ex rel. Dept. Public Works v. Nyrin (1967) 256 Cal.App.2d 288, 294 [ 63 Cal.Rptr. 905 ]; City of Menlo Park v. Artino (1957) 151 Cal.App.2d 261, 270 [ 311 P.2d 135 ]; see also City of Los Angeles v. Wolfe, supra, 3 Cal.3d at p. 335.) 2 The majority concede this litany, but gratuitously claim that these courts simply engaged in a meaningless profession of faith rather than a statement of law.

This court, however, spoke definitively on the subject of future unity of use in People v. Ocean Shore Railroad (1948) 32 Cal.2d 406, 423 [ 196 P.2d 570 , 6 A.L.R.2d 1179 ] (hereafter Ocean Shore). There we asserted that present contiguity and unity of use were both necessary elements for the purpose of establishing entitlement to severance damages. In that case, a defunct railroad company owned two parcels of land separated by a public park. Both parcels, as well as the park, had been used as a roadbed for the company’s tracks and train service, though the tracks had been removed many years before the commencement of the condemnation action.

When one of the two parcels was condemned, the railroad company claimed severance damages as to the other, though the two parcels were separated by a public park, across which the railroad at most once had a prescriptive easement that it abandoned when it removed its tracks and rolling stock. The railroad company argued that the whole roadbed was *762 susceptible of a common use, that the parcels separated by the park were therefore unified in use, and that the whole roadbed, though not contiguous, should thus be considered a single parcel for the purpose of severance damages.

We acknowledged that in an exceptional case the requirement of contiguity might be dispensed with if there was an existing unity of use. (Ocean Shore, supra, 32 Cal.2d at p. 423 .) We maintained, however, that the general rule is that severance damages are limited to contiguous property, and rejected the claim that a prospective unity of use could establish entitlement to severance damages. “[T]he mere fact that there is a possible or prospective use of separate property as a unit, or that they are susceptible to a common use, will not justify the allowance of severance damages.” (Ibid.., italics added.) That has been the law for more than four decades.

We also acknowledged that when the condemned property is valued, its fair market value will take into account the property’s highest and best use, including prospective unified use of separate parcels. We sharply distinguished that rule of valuation, however, from the threshold problem of entitlement to severance damages.

This distinction between entitlement to severance damages and valuation of the condemned property is, I believe, the key to the disposition of the present case. It is a distinction of which the majority have evidently tired, saying the concepts are not “so easily separable.” (Maj. opn., ante, at p. 757.) Yet we clearly drew the distinction in Ocean Shore, supra, 32 Cal.2d 406 . After recognizing the rule of valuation applicable to the condemned property, that is, that “highest and best use” may be measured by a potential joinder of parcels, we explained: “That rule, however, has no application to the allowance of severance damages. The possibility of joinder of parcels for a specified use is a factor that might be weighed by a prospective purchaser, if the joinder were reasonably practicable, and hence is an element to be considered in determining the value of the property taken, but it has no bearing on the allowance of severance damages. Under section 1248 of the Code of Civil Procedure, the primary test for severance damages is contiguity, and while an existing unity of use may warrant an award, none can be allowed where, as here, the property is not contiguous, and there is merely a possible or prospective, and not a presently existing, unity of use” (Id. at p. 424, italics added.)

Thus, we clearly stated that the question of highest and best use is asked only once a larger parcel has been defined on the basis of present use. We established that mere potential future joint use of a parcel is not enough to *763 show entitlement to severance damages. Our decision in Ocean Shore, supra, 32 Cal.2d 406 , has subsequently been read as establishing precisely this rule. (See, e.g., People ex rel. Dept. Public Works v. TeVelde (1970) 13 Cal.App.3d 450, 456 [ 91 Cal.Rptr. 556 ]; Condemnation Practice in Cal. (Cont.Ed.Bar 1973) § 5.4, p. 98; M & R Inv. Co., Inc. v. State (1987) 103 Nev. 445 [ 744 P.2d 531, 535 ].) I would abide by this settled authority.

III

Policy as well as precedent contravenes the majority position. The government owes a landowner just compensation when it takes private land, but when it does not take all of the landowner’s land, but only part of it, the landowner is entitled to compensation for the land he or she still owns only if an injury to that land has actually occurred through the taking. Of course, when there is no taking, the government is not required to compensate a landowner, even though its actions affect the value of the land. (Campbell v. United States (1924) 266 U.S. 368, 371 [ 69 L.Ed. 328, 330 , 45 S.Ct. 115 ]; United States v. 15.65 Acres of Land (9th Cir. 1982) 689 F.2d 1329, 1331 .)

The injury that we recognize as entitling the landowner to severance damages, as the majority concede, is an injury to the integrity of a parcel of land that is destroyed when the plot of land is torn in two. (Sharp, supra, 191 U.S. at p. 354 [48 L.Ed.2d at pp. 215-216].) When there is no current integrity in the parcel, there is no injury to the remainder when part of the parcel is condemned. The landowner whose unrealized plans to integrate the parcel are disturbed by the taking is in no different position from any adjacent landowner whose land is not subject to a taking but whose future plans to enlarge and develop his or her holding may be affected by the public project. Such an owner is not, of course, entitled to severance damages.

The majority instruct that we have dispensed with the requirement that there be unity of title in order to establish entitlement to severance damages. (Maj. opn., ante, at p. 746.) Contiguity, too, has faded as a requirement. (Maj. opn., ante, at p. 747.) Today the majority hold that current unity of use is not required, either.

Accordingly, the majority retain no method of distinguishing between partial takings that destroy integrity from partial takings that do not. Instead, they have transformed severance damages into a cash cow for landowners who happen to have a portion of their land taken by eminent domain. Not only are landowners to be compensated for the highest and best use of the land taken, but as to the remainder, landowners may make a claim for severance damages on the basis of nothing more than the dream of a *764 business plan, regardless of the use to which the land itself has been put or any actual damage to the owner’s use and enjoyment of the land.

I am aware that the value of condemned property is measured by its market value, which may include the value of the land if it were assembled into a larger parcel. These defendants, in fact, received substantial compensation for the condemned land that included the value of the lost opportunity to assemble the taken land with the remainder and develop the whole. But there is justice in distinguishing between condemned property, the value of which is measured at its highest and best use, and property that remains undisturbed in the hands of the owner. Unlike condemned property, the future value of which is extinguished forever as far as the owner is concerned, the remainder still belongs to the owner. If he or she has not lost anything at the time of the taking, he or she has not lost anything at all, because the future, with its risks and opportunities, still belongs to the owner.

The law of eminent domain is intended to strike a balance between the interest of the public and that of the individual landowner. (See People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, 749 [ 218 Cal.Rptr. 24 , 705 P.2d 347 ].) “The law of eminent domain is fashioned out of the conflict between the people’s interest in public projects and the principle of indemnity to the landowner.” (U.S. ex rel. TVA v. Powelson (1943) 319 U.S. 266, 280 [ 87 L.Ed. 1390, 1400 , 63 S.Ct. 1047 ].) In deference to the claims of a private owner for indemnification for future losses, the majority opinion fails to recognize that the principles of just compensation must protect the public as well as the private landowner. (Bauman v. Ross (1897) 167 U.S. 548, 574 [ 42 L.Ed. 270, 283 , 17 S.Ct. 966 ]; City of Fresno v. Cloud. (1972) 26 Cal.App.3d 113, 123 [ 102 Cal.Rptr. 874 ].) The public interest in orderly development of infrastructure at a reasonable cost should not be held hostage to exorbitant claims of landowners who want guaranteed profit but none of the risk of private land ownership.

Finally, to ratify a claim for damages as to property still in the possession of defendants and available for the same use to which defendants have always put the land, simply because a public project and partial taking conceivably limit the future development potential of the land, seems inconsistent with the takings doctrine that has emerged over the last two decades in state and federal courts. An owner who still owns the land and may use it as he or she has always done, but who objects to a diminution of future development profits is in no different position than a landowner who complains that government land use regulation has impaired his or her future development profits in a parcel of land. Yet the state is entitled to restrict the *765 use of land in private hands; there is no right to compensation for diminished development potential: “the submission that [owners] may establish a ‘taking’ simply by showing that they have been denied the ability to exploit a property interest that they heretofore had believed was available for development is quite simply untenable.” (Penn. Central Transp. Co. v. New York City (1978) 438 U.S. 104, 130 [ 57 L.Ed.2d 631, 652 , 98 S.Ct. 2646 ]; see also Lucas v. South Carolina Coastal Council (1992) 505 U.S._[ 120 L.Ed.2d 798, 812-813, 815-816, 820-821 , 112 S.Ct. 2886, 2893, 2895, 2900 ] [restriction on development a taking because it denied the owner all economically beneficial or productive use of the land].)

The rule adopted by the majority today is inconsistent with the settled understanding that only a vested interest in development of land remaining in private ownership is compensable when it is disappointed by government action. (See, e.g.,Avco Developers, Inc. v. South Coast Regional Com. (1976) 17 Cal.3d 785, 796, 800-801 [ 132 Cal.Rptr. 386 , 553 P.2d 546 ] [zoning changes binding on owner in absence of vested right to complete development]; Long Beach Equities, Inc. v. County of Ventura (1991) 231 Cal.App.3d 1016, 1036 [ 282 Cal.Rptr. 877 ] [denial of highest and best use not a taking even when regulation causes substantial diminution in value]; Terminals Equipment Co., Inc. v. City and County of San Francisco (1990) 221 Cal.App.3d 234, 244 [ 270 Cal.Rptr. 329 ] [landowner has no constitutional right to develop property for maximum economic profit].) The defendants, who have sought no building permits, undertaken no expenses, and in fact have not taken the first step towards developing their land, are now to be compensated for a purported lost development opportunity that is very far from being vested. In short, the taxpayers are being ordered to pay for a dream.

IV

I would reverse the judgment of the Court of Appeal.

Kennard, J., and Arabian, J., concurred.

*766 Appendix

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All statutory references are to the Code of Civil Procedure unless otherwise indicated.

Thus, for example, one court relied upon the above quoted language in rejecting a claim for severance damages to land occupied by an electronics factory when the state condemned contiguous property of the same owner that had been used for farming. “It cannot be said that there was any actual use made of the agricultural parcel that was reasonably and substantially necessary for the operation of an electronics plant." (People ex rel. Dept. Public Works v. International Tel. & Tel., supra, 22 Cal.App.3d at p. 835 .)