Redevelopment Agency v. Gilmore

• Decision Date: 13 June 1985
• Citation: 700 P.2d 794,214 Cal.Rptr. 904,38 Cal.3d 790
• Court: California Supreme Court
• Parties: , 700 P.2d 794 REDEVELOPMENT AGENCY OF the CITY OF BURBANK, Plaintiff and Respondent, v. Walter L. GILMORE, Jr., et al., Defendants and Appellants. L.A. 31891.

Page 904

214 Cal.Rptr. 904

38 Cal.3d 790, 700 P.2d 794

REDEVELOPMENT AGENCY OF the CITY OF BURBANK, Plaintiff and Respondent, v. Walter L. GILMORE, Jr., et al., Defendants and Appellants.

L.A. 31891.

Supreme Court of California In Bank.

June 13, 1985.

Irsfeld, Irsfeld & Younger, Glendale, O'Neill & Huxtable, Richard L. Huxtable and Francis H. O'Neill, Los Angeles, for defendants and appellants.

John Briscoe, Sandi L. Nichols, Thomas B. Brown, Washburn & Kemp, San Francisco, Fadem, Berger & Norton, Michael M. Berger, Santa Monica, Parkinson, Wolf, Lazar & Leo, Richard B. Wolf and Michael W Connally, Los Angeles, as amici curiae on behalf of defendants and appellants.

William B. Rudell, City Atty., and Richard W. Marston, Sr., Asst. City Atty., for plaintiff and respondent.

Robert F. Carlson, Gordon S. Baca, Charles E. Spencer, Jr., Sacramento, 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 Atty., San Buenaventura, K. Duane Lyders, City Atty., Oxnard, James F. Rupp, Jr., City Atty., Port Hueneme, Roger Picquet, City Atty., San Luis Obispo, Mark G. Sellers, Acting City Atty., Thousand Oaks, Dankert & Kuetzing, Thomas M. Dankert, Ventura, Murray O. Kane, R. Bruce Tepper, Jr., Kathryn Reimann and Weiser, Kane, Ballmer & Berkman, Los Angeles, as amici curiae on behalf of plaintiff and respondent.

GRODIN, Justice.

We confront an issue created by the sharp rise in market rates of interest during recent years. When a public agency condemns property and exercises its statutory right to take possession before the condemnation price is set or fully paid, does the "just compensation" which the Constitution requires include interest at prevailing market rates rather than a lower "legal" rate specified in the Eminent Domain Law? We conclude that it does.

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 (CODE CIV.PROC., § 1255.010 )¹ and obtaining an "order for possession" ( § 1255.410). The condemnee may apply for the right to withdraw the court deposit or any portion thereof ( § 1255.210 et seq.).

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. ( § 1268.310.) However, interest ceases to accrue on any amount previously deposited in court when the condemnee withdraws that amount. ( § 1268.320, subd. (a).) In other words, the condemnee receives interest on the difference between the final award and any amount previously deposited and withdrawn.

The legal rate of interest on judgments was 7 percent until July 1, 1983. (Cal. Const., art. XV, § 1.) On that date, as permitted by the Constitution, a statute raising the rate of judgment interest to 10 percent became effective. ( § 685.010.) ²

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 Gilmores purchased comparable property on February 10, 1981, with a down payment of $200,000 and borrowed the balance due, $225,000, at 14 percent. ⁵

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 U.S. Const., Amends. V, cl. 4, XIV; Cal. Const., art. I, § 19.) We agree. ⁶

The governing principles are well established. In Seaboard Air Line Ry. v. U.S. (1923) 261 U.S. 299, 43 S.Ct. 354, 67 L.Ed. 664, 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 entitled is the full and perfect equivalent of the property taken. [Citation.]" This "means substantially that the owner shall be put in as good position pecuniarily as he would have been if his property had not been taken. [Citation.]" (at p. 304, 43 S.Ct. at p. 356, italics added.)

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, 47 S.Ct. 611, 612, 71 L.Ed. 1083, 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, 43 S.Ct. at p. 356; see also Albrecht v. United States (1947) 329 U.S. 599, 602-603, 67 S.Ct. 606, 608-609, 91 L.Ed. 532.) 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. ( § 1268.310.) It now seems clear, however, that a statutory interest ceiling cannot prevail where it falls short of constitutional "just compensation" under the standard of Seaboard and Phelps. When the delay occurs during times of inflationary market interest rates which substantially exceed the statutory rate, application of the lower statutory limit denies the condemnee "the full equivalent of the [property's] value ... at the time of taking paid contemporaneously with the taking." (Phelps, supra, 274 U.S. at p. 344, 47 S.Ct. at p. 612.)

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, 462 N.Y.S.2d 619, 621-622, 449 N.E.2d 399, 401-402; Marine Midland Bank, N.A. v. State (Ct.Cl.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, 129, 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; 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, 104 S.Ct. 2187, 81 L.Ed.2d 1, 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...