ALLEGRETTI v. COUNTY OF IMPERIAL

Filed 3/28/06; pub. order 4/26/06 (see end of opn.)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of Imperial County, Jeffrey B. Jones, Judge. Affirmed.

Allegretti & Company (Allegretti) appeals a judgment entered under Code of Civil Procedure section 631.8 in favor of the County of Imperial (County) on Allegretti's inverse condemnation action seeking just compensation for County's alleged taking of Allegretti's right to use groundwater underlying its property. County had approved Allegretti's application for a conditional use permit to activate a well on its property on the condition, imposed under a County ordinance, that Allegretti extract no more than 12,000 acre/feet per year of water from the aquifer underlying its property. At the close of Allegretti's liability case, the trial court ruled there was no compensable taking and entered judgment on specific findings, inter alia, that County's restriction did not deprive Allegretti of all economically viable use of its property, and Allegretti had not shown County's regulation did not advance a legitimate state interest.

On appeal, Allegretti contends County's action was without jurisdiction and constituted a physical taking of its water rights, mandating just compensation under the federal and state Constitutions. Allegretti further contends that assuming County's action amounted to a regulatory taking, compensation was mandated because (1) the regulation deprived it of all economically beneficial or productive use of its land; (2) the Penn Central^[1] factors of economic impact, interference with investment-backed expectations, and character of the governmental action compel a finding that the regulation effected a taking; and (3) County's unauthorized action failed to substantially advance a legitimate state interest. Finally, Allegretti contends the trial court misapplied the law pertaining to temporary takings in reaching its conclusions, requiring reversal of the judgment.

We conclude County's actions, either during the course of the permitting process, in approving the permit with the use restriction, or in defending against Allegretti's inverse condemnation action, did not effect a physical or regulatory taking. Accordingly, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Allegretti owns property in Imperial County that overlies groundwater basins, which are accessed by Allegretti and its farmer tenant for irrigation purposes via deep-water wells and pumps. In October 1994, Allegretti filed with County an application for a conditional use permit to redrill an inoperable well, one of several existing wells on the property, so that it could add approximately 200 acres of land for crop production. Allegretti's tenant used the remaining operating wells to actively farm portions of the land between 1993 and 2004. In June 1997, County approved the conditional use permit for Allegretti's redrilling project subject to certain conditions, including one limiting Allegretti's draw of groundwater to 12,000 acre/feet per year from all production wells on site. Allegretti did not record the permit and it never took effect. Allegretti acknowledges there are no present restrictions on the use of water from its existing wells.

In November 1997, Allegretti sued County for inverse condemnation.^[2] In part, it alleged County had no jurisdiction to require Allegretti to obtain a conditional use permit, and that a regulatory taking resulted from County's requirement that Allegretti obtain a permit and show reactivation of its well would not significantly or adversely affect either the environment or the groundwater basin.^[3] County successfully demurred to the complaint on the ground Allegretti had failed to seek a writ of administrative mandamus and thus it did not state a cause of action since County had jurisdiction under Imperial County Ordinance sections 56350 et seq. (hereafter the ordinance) to issue a conditional use permit for the well's reactivation.^[4] In an unpublished opinion on Allegretti's appeal of that order (Allegretti I, supra, D031154), we reversed the judgment. We concluded that although County had general regulatory authority to control Allegretti's use of the water underlying its property (Wat. Code, §§ 104, 105; see Baldwin v. County of Tehama (1994) 31 Cal.App.4th 166, 173, 175-182), the record on appeal did not show County was acting on standards specific enough to permit it to limit Allegretti's groundwater use. (Allegretti I, supra, D031154.) The sole question resolved by our decision in Allegretti I was whether Allegretti was required to pursue a writ of administrative mandate before filing its action for inverse condemnation. (Ibid.)

Following remand, the matter proceeded to a bifurcated trial on Allegretti's inverse condemnation cause of action, with a first phase bench trial on liability to precede a second phase on the issue of just compensation. At the close of Allegretti's liability case, County moved for judgment under Code of Civil Procedure section 631.8. The court granted the motion. In its statement of decision, the court ruled, inter alia, County's application of section 56352 of the ordinance did not deprive Allegretti of all economically viable use of its property. The court found "[t]he sole evidence at trial was that a significant portion of the property is farmed by a tenant who is paying rent to [Allegretti] – there is no evidence that [Allegretti] has been denied all viable use of the property." The court further found "[Allegretti's] evidence failed to show that the conditions placed on issuance of the permit would have any economic impact at all. C[ounty] restricted total groundwater removal to 12,000 acre/feet per year as a condition to re-activating Well No. 3 – [Allegretti] offered no evidence that it had the ability to extract water in excess of 12,000 acre/feet absent the restriction." Finally, the court ruled Allegretti did not show County's regulation failed to advance a legitimate state interest.

The court entered judgment accordingly. Allegretti appeals.

DISCUSSION

I. Standard of Review

"The standard of review of a judgment and its underlying findings entered pursuant to [Code of Civil Procedure] section 631.8 is the same as a judgment granted after a trial in which evidence was produced by both sides. In other words, the findings supporting such a judgment 'are entitled to the same respect on appeal as are any other findings of a trial court, and are not erroneous if supported by substantial evidence.' " (San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 528.) When the decisive facts are undisputed, however, the reviewing court is confronted with a question of law and is not bound by the findings of the trial court. [Citation.] In other words, the appellate court is not bound by a trial court's interpretation of the law based on undisputed facts, but rather is free to draw its own conclusion of law." (Ibid.) Whether there was a compensatory taking is a question of law, and we are not bound by the lower court's interpretation of the evidence presented on the question below. (Yee v. Mobilehome Park Rental Review Bd. (1998) 62 Cal.App.4th 1409, 1418; see also Bass Enter. Prod. C. v. United States (1998) 133 F.3d 893, 895 ["Whether a taking is compensable under the Fifth Amendment is a question of law based on factual underpinnings"].)

II. General Principles of Takings Law

The state and federal Constitutions guarantee real property owners "just compensation" when their land is "taken . . . for public use. . . ." (13 Cal. Const., art. I,

§ 19; U.S. Const., 5th Amend.; Lingle v. Chevron U.S.A. Inc. (2005) 544 U.S. 528, ___ [125 S.Ct. 2074, 2081] (Lingle); Herzberg v. County of Plumas (2005) 133 Cal.App.4th 1, 12-13.) The Fifth Amendment's Takings Clause, made applicable to the states through the Fourteenth Amendment, does not prohibit the taking of private property, but instead places a condition on the exercise of that power. (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2080].) "In other words, it 'is designed not to limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking.' " (Ibid.)

"The paradigmatic taking requiring just compensation is a direct government appropriation or physical invasion of private property." (Lingle, supra, 544 U.S. at

p. ___ [125 S.Ct. at p. 2081].) But "government regulation of private property may, in some instances, be so onerous that its effect is tantamount to a direct appropriation or ouster – and . . . such 'regulatory takings' may be compensable under the Fifth Amendment." (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2081].) Supreme Court precedents recognize two categories of regulatory action that generally will be deemed per se takings for Fifth Amendment purposes. (Ibid.) First, where government requires an owner to suffer a "permanent physical invasion" of his property – even as minor as cable lines and boxes bolted onto an apartment building's roof and exterior walls – it must provide just compensation. (Id. at p. ___ [125 S.Ct. at p. 2081], citing Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419 (Loretto); see also Yee v. City of Escondido (1992) 503 U.S. 519, 527 ["The government effects a physical taking only where it requires the landowner to submit to the physical occupation of his land"].) "A second categorical rule applies to regulations that completely deprive an owner of 'all economically beneficial use' of her property." (Lingle, supra, at p. ___ [125 S.Ct. at p. 2081], quoting Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003, 1019 (Lucas).) "[I]n Lucas [the high court held] that the government must pay just compensation for such 'total regulatory takings,' except to the extent that 'background principles of nuisance and property law' independently restrict the owner's intended use of the property." (Lingle, 544 U.S. at p. ___ [125 S.Ct. at p. 2081].) Outside these two categories, regulatory takings challenges are governed by the "essentially ad hoc, factual inquiries" set forth in Penn Central, supra, 438 U.S. 104. (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2081]; Penn Central, at p. 124; Herzberg, supra, 133 Cal.App.4th at p. 14.) There is no set formula, but " 'several factors . . . have particular significance.' [Citation.] Primary among those factors are '[t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations.' [Citation.] In addition, the 'character of the governmental action' – for instance whether it amounts to a physical invasion or instead merely affects property interests through 'some public program adjusting the benefits and burdens of economic life to promote the common good' – may be relevant in discerning whether a taking has occurred. [Citation.] The Penn Central factors – though each has given rise to vexing subsidiary questions – have served as the principal guidelines for resolving regulatory takings claims that do not fall within the physical takings or Lucas rules." (Lingle, 544 U.S. at p. ___ [125 S.Ct. at pp. 2081-2082]; see Herzberg, at p. 14.) Each of these Penn Central inquiries aims to "identify regulatory actions that are functionally equivalent to the classic taking in which the government directly appropriates private property or ousts the owner from his domain. Accordingly, each of these tests focuses directly upon the severity of the burden that government imposes upon private property rights." (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2082]; Herzberg, supra, 133 Cal.App.4th at p. 14.)

III. County's Permit Condition Does Not Constitute a Physical Taking

We first address Allegretti's contention that County's action effected a physical taking of Allegretti's "water rights"^[5] mandating compensation as a per se taking. Relying on air rights cases, cases involving the government's diversion of water from landowners, and the decision of the Federal Circuit Court of Claims in Tulare Lake Basin Water Storage Dist. v. United States (2001) 49 Fed.Cl. 313 (Tulare Lake), Allegretti maintains County's regulation, which it characterizes as denying it access to the aquifer on its land, physically took Allegretti's right to use the water as if it had diverted it elsewhere. Allegretti argues "when one is precluded from exercising the right to use water today, the right to use that particular water is gone forever."

In response, County points out its sole actions were (1) refusal to issue a well drilling permit in the absence of full compliance with the California Environmental Quality Act (CEQA) and (2) issuance of an alternative permit with conditions that would have placed a limit on Allegretti's groundwater extractions. It, as well as amicus Attorney General, argues those actions did not physically invade, impound or appropriate Allegretti's property and convert it to some other use, and thus it is not a categorical physical taking under United States Supreme Court precedents. Both County and the Attorney General challenge Allegretti's reliance on Tulare Lake as misplaced; they maintain Tulare Lake conflates physical and regulatory takings analyses and was wrongly decided.

The United States Supreme Court in Loretto, supra, carefully distinguished permanent physical takings from both temporary physical invasions and regulations merely restricting the use of private property. (Loretto, supra, 458 U.S. at pp. 427-435.) It pointed out that a compensable physical taking would occur in circumstances where "real estate is actually invaded by superinduced additions of water, earth, sand, or other material, or by having any artificial structure placed on it" (id. at p. 427); flooding results in an " 'actual, permanent invasion of the land, amounting to an appropriation of, and not merely an injury to, the property' " (id. at p. 428); telegraph or telephone lines, rails and underground pipes or wires are placed above or below an owner's property (id. at pp. 428-429); or where the government causes frequent aircraft flights immediately above an owner's property, as such action is analogous to construction of an elevated railway causing an " 'intrusion so immediate and direct as to subtract from the owner's full enjoyment of the property and to limit his exploitation of it.' " (Id. at p. 431, citing U.S. v. Causby (1946) 328 U.S. 256, 264-265.) Such circumstances are not the same as where, for example, the government orders nonessential gold mines to cease operations for the purpose of conserving equipment or manpower (Loretto, at p. 431, citing United States .v Central Eureka Mining Co. (1958) 357 U.S. 155, 165-166 [government "did not occupy, use, or in any manner take physical possession of the gold mines or of the equipment connected with them"].) More recently, in Brown v. Legal Foundation of Wash. (2003) 538 U.S. 216 the court explained: " 'When the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner, [citation], regardless of whether the interest that is taken constitutes an entire parcel or merely a part thereof. Thus, compensation is mandated when a leasehold is taken and the government occupies the property for its own purposes, even though that use is temporary. [Citations.] Similarly, when the government appropriates part of a rooftop in order to provide cable TV access for apartment tenants [citation]; or when its planes use private airspace to approach a government airport [citation], it is required to pay for that share no matter how small.' " (Brown v. Legal Foundation of Wash., supra, 538 U.S. at p. 235, quoting Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency (2002) 535 U.S. 302, 321-323.) California authority abides by these distinctions. (See Erlich v. City of Culver City (1996) 12 Cal.4th 854, 888-889; Hensler v. City of Glendale (1994) 8 Cal.4th 1, 9-10; NJD, Ltd. v. City of San Dimas (2003) 110 Cal.App.4th 1428, 1435 [categorical taking requires that the government physically take possession of an interest in property for a public purpose]; Loewenstein v. City of Lafayette (2002) 103 Cal.App.4th 718, 728.)

In the context of water rights, our highest court has found a physical taking where the government diverted water for its own consumptive use or decreased the amount of water accessible by the owner of the water rights. (Washoe County v. United States (2003) 319 F.3d 1320, 1326, citing Dugan v. Rank (1963) 372 U.S. 609, 614, 625-626 [government's upstream impounding of water at a dam constitutes a taking of water rights from downstream owners, analogizing government action to taking of airspace over land]; Int'l Paper County. v. United States (1931) 282 U.S. 399, 407-408 [taking found where the Secretary of War ordered a private power company to withdraw water from the petitioner's mill to increase power production for government uses].)

County's action with respect to Allegretti in the present case – imposition of a permit condition limiting the total quantity of groundwater available for Allegretti's use – cannot be characterized as or analogized to the kinds of permanent physical occupancies or invasions sufficient to constitute a categorical physical taking. The County did not physically encroach on Allegretti's property or acquifer and did not require or authorize any encroachment (e.g. Yee v. City of Escondido, supra, 503 U.S. 519, 527); it did not appropriate, impound or divert any water. The County's permit decision does not effect a per se physical taking under any reasonable analysis.

We are not persuaded by Allegretti's reliance on the U.S. Court of Federal Claims's decision in Tulare Lake, supra, 49 Fed.Cl. 313, as support for the proposition that use restrictions on underground water rights are analogous to a categorical physical taking. In Tulare Lake, water districts argued that their water rights, which were contractually conferred by certain governmental agencies, were taken in violation of the Fifth Amendment by use restrictions imposed by the State Water Resources Control Board (the Board) under the Endangered Species Act. (Id. at pp. 314-316.) Comparing the circumstances to the overflights of aircraft found to constitute a taking in United States v. Causby, supra, 328 U.S. 256, the Tulare Lake court held the restrictions caused a physical taking of the plaintiffs' contractual entitlement to a particular amount of water from the Board's facilities.^[6]

Allegretti has provided no authority compelling us to follow the holding of an intermediate federal court. To the contrary, we are not bound by lower federal court decisions. (People v. Gray (2005) 37 Cal.4th 168, 226.) Even if we found it appropriate to consider Tulare Lake, we would find it distinguishable by virtue of the existence of identifiable contractual rights between the plaintiffs and water rights holder, rights that are not present in this case.

In any event, the persuasive value of Tulare Lake has been undercut in Klamath Irrigation District v. United States (2005) 67 Fed.Cl. 504 (Klamath), in which the court rejected the underpinnings of its Tulare Lake decision. (Id. at p. 538 ["with all due respect, Tulare appears to be wrong on some counts, incomplete on others, and distinguishable, in all events"].) In Klamath, the court criticized Tulare Lake's treatment of the plaintiffs' contracts as absolute and "confer[ring] on plaintiffs a right to the exclusive use of prescribed quantities of water," without adequately considering whether the contracts were limited in the event of water shortage by prior contracts, prior appropriations or other state law principles. (Klamath, 67 Fed.Cl. at p. 538.) The court further faulted Tulare Lake for neglecting to consider whether the plaintiffs' claimed use of water violated state doctrines including those designed to protect fish and wildlife, noting as a consequence Tulare Lake awarded just compensation "for the taking of interests that may well not exist under state law." (Klamath, 67 Fed.Cl. at p. 538.) Finally, the court noted the Tulare Lake decision did not consider numerous decisions vitiating takings claims by the availability of contract remedies. (Ibid., citing Hughes Communications Galaxy, Inc. v. United States (Fed.Cir. 2001) 271 F.3d 1060, 1070

[" 'the concept of taking as a compensable claim theory has limited application to the relative rights of party litigants when those rights have been voluntarily created by contract. In such instances, interference with such contractual rights generally gives rise to a breach claim not a taking claim' "]; United States v. Winstar Corp. (1996) 518 U.S. 839, 919; Glendale Fed. Bank, FSB v. United States (2001) 239 F.3d 1374, 1379-1380; Castle v. United States (Fed.Cir. 2002) 301 F.3d 1328, 1342.) For these reasons, Klamath rejected Tulare Lake's approach and supporting rationales.

We likewise decline to rely on Tulare Lake's reasoning to find a physical taking under the circumstances presented by County's action. Aside from the deficiencies noted in Klamath, supra, 67 Fed.Cl. at p. 504, we disagree with Tulare Lake's conclusion that the government's imposition of pumping restrictions is no different than an actual physical diversion of water. (Tulare Lake, supra, 49 Fed.Cl. at pp. 319-320.) The reasoning is flawed because in that case the government's passive restriction, which required the water users to leave water in the stream, did not constitute a physical invasion or appropriation like the government's diversion in International Paper Co. v. United States, supra, 282 U.S. 399 or its low flight of army and navy airplanes in Causby, supra, 328 U.S. at page 259. Tulare Lake's reasoning disregards the hallmarks of a categorical physical taking, namely actual physical occupation or physical invasion of a property interest.^[7]

IV. County's Action is Not a Regulatory Taking

Allegretti contends that if we conclude County's permit decision must be analyzed as regulatory action, we should nevertheless hold it constitutes a categorical taking because it denied Allegretti all economically beneficial or productive use of its land by "preventing the full utilization of water that Allegretti had a right to access." Alternatively, Allegretti contends County's action constitutes a taking under Penn Central's factual analysis.

County's act in conditioning Allegretti's permit on certain water use limitations is of a regulatory nature, and as we previously held in Allegretti I, it is an act taken under the authority of its police powers. A government regulation that restricts certain private uses of a portion of an owner's property does not constitute a categorical taking; it is to be analyzed under regulatory takings jurisprudence. (See Brown v. Legal Foundation of Wash., supra, 538 U.S. at p. 235; Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, supra, 535 U.S. at pp. 321-323; Hensler v. City of Glendale, supra, 8 Cal.4th at pp. 9-10.)

A. Total Regulatory Taking

When government regulation completely deprives an owner of " 'all economically beneficial us[e]' " of its land, a taking is established and just compensation is due. (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2081]; Lucas, supra, 505 U.S. at p. 1015; see also Palazzolo v. Rhode Island (2001) 533 U.S. 606, 617; NJD, Ltd. v. City of San Dimas, supra, 110 Cal.App. 4th at pp. 1436-1438; Loewenstein v. City of Lafayette, supra, 103 Cal.App.4th at p. 728.)

Continued in Part II ……..

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^[1] Penn Central Transp. Co. v. City of New York (1978) 438 U.S. 104.

^[2] This was apparently Allegretti's second inverse condemnation lawsuit. It had previously filed suit against County in May 1996 concurrently with a petition for writ of mandate, but the court sustained County's demurrer without leave to amend on grounds the action was premature.

^[3] Allegretti had also alleged County's delay in issuing the permit caused a taking; the parties stipulated before trial that this cause of action was no longer at issue.

^[4] We take judicial notice of our prior unpublished opinion in this case, Allegretti & Company v. County of Imperial (Apr. 19, 2000, D031154) [nonpub. opn.] (Allegretti I). (Evid. Code, §§ 452, subd. (d), 459, subd. (a).)

^[5] Allegretti's right to extract groundwater is as an "overlying" owner. As the California Supreme Court has explained, "overlying water rights are usufructuary only, and while conferring the legal right to use the water that is superior to all other users, confer no right of private ownership in public waters." (City of Barstow v. Mojave Water Agency (2000) 23 Cal.4th 1224, 1237; Central and West Basin Water Replenishment Dist. v. Southern Cal. Water Co. (2003) 109 Cal.App.4th 891, 905 ["there is no private ownership of groundwater"].) Water rights carry no specific property right in the corpus of the water itself. (Big Rock M.W. Co. v. Valyermo Ranch Co. (1926) 78 Cal.App. 266, 275.)

^[6] The Tulare Lake court stated: "In the context of water rights, a mere restriction on use – the hallmark of a regulatory action – completely eviscerates the right itself since plaintiffs' sole entitlement is to the use of the water. [Citation.] Unlike other species of property where use restrictions may limit some, but not all of the incidents of ownership, the denial of a right to the use of water accomplishes a complete extinction of all value. Thus, by limiting plaintiffs' ability to use an amount of water to which they would otherwise be entitled, the government has essentially substituted itself as the beneficiary of the contract rights with regard to that water and totally displaced the contract holder. That complete occupation of property – an exclusive possession of plaintiffs' water-use rights for preservation of the fish – mirrors the invasion present in Causby[, supra, 328 U.S. 256]. To the extent, then, that the federal government, by preventing plaintiffs from using the water to which they would otherwise have been entitled, have rendered the usufructuary right to that water valueless, they have thus effected a physical taking." (Tulare Lake, supra, 49 Fed. Cl. at p. 319.)

^[7] We deny County's request for judicial notice of letters from California's Chief Deputy Attorney General for Legal Affairs and the Chair of the California State Water Resources Control Board. County does not provide explanation why these letters written by governmental employees constitute "official acts" in contrast to mere correspondence. Moreover, given our reliance on Klamath, it is not necessary to our decision to take judicial notice of these items.