Richmond Elks Hall Ass'n v. Richmond Redevelopment Agency, s. 75-2520 and 75-2491

• Citation: 561 F.2d 1327
• Decision Date: 30 September 1977
• Docket Number: Nos. 75-2520 and 75-2491,s. 75-2520 and 75-2491
• Parties: RICHMOND ELKS HALL ASSOCIATION, Plaintiff, v. RICHMOND REDEVELOPMENT AGENCY and the City of Richmond, Defendants, (Richmond Redevelopment Agency, Appellant.) RICHMOND ELKS HALL ASSOCIATION, Plaintiff-Appellant, v. RICHMOND REDEVELOPMENT AGENCY and the City of Richmond, Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1327

561 F.2d 1327

RICHMOND ELKS HALL ASSOCIATION, Plaintiff, v. RICHMOND REDEVELOPMENT AGENCY and the City of Richmond,

Defendants, (Richmond Redevelopment Agency, Appellant.)

RICHMOND ELKS HALL ASSOCIATION, Plaintiff-Appellant, v. RICHMOND REDEVELOPMENT AGENCY and the City of Richmond, Defendants.

Nos. 75-2520 and 75-2491.

United States Court of Appeals, Ninth Circuit.

Sept. 30, 1977.

Ronald J. Mulcare (argued), Turner & Mulcare, San Mateo, Cal., Bold and Polisner, Walnut Creek, Cal., Jackson and Gughemetti, Burlingame, Cal., for Richmond Elks Hall Assn.

William R. Edgar (argued), Herman H. Fitzgerald, Fitzgerald, Johnson, Berg and Edgar, San Francisco, Cal., for Richmond Redevelopment Agency.

Appeal from the United States District Court for the Northern District of California.

Before CHAMBERS and TRASK, Circuit Judges, and THOMPSON, ^* District Judge.

TRASK, Circuit Judge:

This case involves an appeal by Richmond Redevelopment Agency (Agency) from a final judgment of the United States District Court for the Northern District of California, ordering Agency to pay to Richmond Elks Hall Association (Elks) a certain sum of money as just compensation for a de facto taking in inverse condemnation of certain property owned by Elks. The judgment ordered Elks, upon payment, to convey the property to the Agency by quitclaim deed. Elks cross-appeals from the judgment which fails to award Elks its litigation expenses, including attorneys' fees and expert witness fees.

The district court set forth its findings of fact in a document filed September 17 1974. While Agency challenges several of these findings of fact as clearly erroneous, we have carefully examined the trial court's findings and uphold the same on appeal. The facts underlying this dispute may be summarized as follows.

Elks is the record owner in fee simple of certain improved real property in the City of Richmond, California. The improvement consists of a four-story building with a basement, the first story of which had been partitioned and leased to commercial tenants under successive five-year leases.

In September 1959, the City of Richmond included Elks' property within an area which it declared blighted and in need of redevelopment. Agency, created by the City for the purpose of directing the redevelopment and at all times in question possessing the power of eminent domain, subsequently set about formulating the necessary plan for redeveloping the area. Agency's plan was approved by the City of Richmond on May 23, 1966.

Under provisions of the plan, which was given wide publicity, properties within the project area were placed into two classifications: (1) acquisition parcels, and (2) owner participation parcels. The plan stated that Agency "shall" acquire all properties categorized as owner participation parcels if not covered by an owner participation agreement. Under the terms of the proposed owner participation agreement, the owner was required to rehabilitate the structure on his property at his own expense to the satisfaction of Agency and its design policy.

In accordance with the plan, Elks was informed by letter dated February 21, 1967, that it could retain its property if and only if it signed an owner participation agreement. Elks, after determining that the expense of rehabilitating its building would be excessive, elected not to enter into an owner participation agreement. Hence, it reasonably understood that its property would be acquired by Agency.

As part of its plan, Agency developed a timetable for acquiring the properties located within the project area. All properties were to be acquired within four years, and the schedule showed Elks' property to be acquired within two years.

Agency recorded its redevelopment plan and its covenants, conditions, and restrictions on all properties located within the project area. On August 16, 1966, Agency passed and recorded a resolution declaring the public use, purpose, and necessity for the acquisition by condemnation of all redevelopment area properties, including the subject property. Said resolution was used as authority for the condemnation of properties in the project area, including properties classified as owner participation parcels under the plan.

In the latter part of 1966, Agency, in executing the plan, commenced the acquisition of project area properties and the demolition of improvements located thereon. The commencement of the project resulted in the unavailability of property insurance (except upon the payment of a high risk premium), plate glass window insurance, and loan money on properties within the redevelopment area.

On October 18, 1966, Agency passed a resolution stating that an owner or tenant of property shall waive any right to compensation for any remodeling or for any increase or enhancement of the value of the property as a result of remodeling. Thereafter, in 1967, a commercial tenant of Elks' property was told by Agency that Elks' property would be acquired within two years, and that the tenant, as a condition to the improvement of his leasehold interest, would have to waive the value of any improvements placed upon the property.

In May 1967, the leases between Elks and its commercial tenants expired. Elks reasonably and justifiably understood that Agency would soon acquire its property, and thus refused to offer tenancies in excess of month-to-month. During this period Elks' commercial tenants experienced a decrease in their gross sales, a direct result of Agency's acquisition, demolition, and relocation program. Because of the decline in sales, most of Elks' tenants vacated the subject property in 1967, and consequently Elks' rental income was cut to less than one-third of the income level existing prior to the institution of Agency's redevelopment plan.

In July 1968, Agency entered into an option agreement with a developer whereby Agency obligated itself to do all acts and things necessary to acquire title to the optioned property and convey it to the developer for the construction of a shopping center. Elks' property was located within the area optioned by Agency to the developer. The option was for one year, but was thereafter extended for an additional year. Wide publicity was given to the existence of the option and the proposed shopping center development, including the fact that Elks' property would become a parking lot for the center.

By the end of 1969, more than 83 percent of the property to be acquired under the plan had been purchased by Agency. However, after this time there were very few acquisitions because the Department of Housing and Urban Development (HUD) halted its funding of the project.

In 1970, Agency undertook street improvements within the redevelopment area. As a result of this street construction the basement of Elks' property was flooded at various times until 1972. Part of the street improvement required the sealing off of portions of Elks' basement.

In July 1972, Agency informed Elks that it preferred not to acquire the property.

The district court found that because of Agency's actions, the subject property became unsaleable in the open market and its use for its intended purposes became severely limited. Therefore, the district court held that the natural consequence of Agency actions was the taking of Elks' property by inverse condemnation in contravention of the Fifth and Fourteenth Amendments of the United States Constitution. The court below indicated that the taking occurred on or about July 23, 1968, the date Agency entered into the option agreement with the developer. The district court awarded Elks the fair market value of its property ($355,000) plus interest, and ordered Elks, upon payment of the judgment award, to convey to Agency by quitclaim deed all its right, title, and interest in the subject property. The district court denied Elks' motion for litigation expenses.

Agency challenges the district court's conclusion that, given the facts set forth above, there was a compensable taking under the Fifth Amendment. This challenge cannot succeed.

When a public entity acting in furtherance of a public project directly and substantially interferes with property rights and thereby significantly impairs the value of the property, the result is a taking in the constitutional sense and compensation must be paid. See, e. g., Drakes Bay Land Co. v. United States, 424 F.2d 574, 584, 191 Ct.Cl. 389 (1970); Foster v. City of Detroit, 254 F.Supp. 655 (E.D.Mich.1966), aff'd, 405 F.2d 138 (6th Cir. 1968); Madison Realty Co. v. City of Detroit, 315 F.Supp. 367 (E.D.Mich.1970).

"(T)o constitute a taking under the Fifth Amendment it is not necessary that property be absolutely 'taken' in the narrow sense of that word to come within the protection of this constitutional provision; it is sufficient if the action by the government involves a direct interference with or disturbance of property rights. See e. g., Pumpelly v. Green Bay Co., 13 Wall. 166, 80 U.S. 166, 20 L.Ed. 557 (1871); United States v. Lynah, 188 U.S. 445, 23 S.Ct. 349, 47 L.Ed. 539 (1903); United States v. Cress, 243 U.S. 316, 37 S.Ct. 380, 61 L.Ed. 746 (1917). Nor need the government directly appropriate the title, possession or use of the properties . . . ." R.J. Widen Co. v. United States, 357 F.2d 988, 993, 174 Ct.Cl. 1020 (1966).

In determining what property rights exist and therefore are subject to taking under the Fifth Amendment, federal courts look to local state law. United States v. Certain Property, Etc., 306 F.2d 439, 444 (2d Cir. 1962). Under California law the rights to use, sell, lease, and encumber real property are property rights. See, e. g., Bias v. Ohio Farmers Indemnity Co., 28 Cal.App.2d 14, 81 P.2d 1057 (1938); Centoni v. Ingalls, 113 Cal.App. 192, 298 P. 47 (1931); Winchester v. Winchester, 175 Cal. 391, 165 P. 965 (1917). Elks had these rights prior to redevelopment. However, as a result of Agency action, Elks'...