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.

Continue from Part I ……..

Allegretti maintains it presented evidence that "demonstrated a deprivation of 'economically beneficial or productive use' " by showing: (1) productive use of Allegretti's 2400 acre farm had been "restricted by lack of the ability to pump sufficient water from underground to irrigate and cultivate more than 800 acres, sometimes less"; (2) the owner had a reasonable belief and expectation he could farm the full 2400 acres and make a substantial profit on his investment; and (3) the owner and his tenant farmer would be able to farm more land if they could gain access to additional water for irrigation. Allegretti argues: "Being able to farm 400 or 600 or 800 acres out of a 2400 acre farm may be some 'use,' but it is not 'economically beneficial or productive' use of a multi-million dollar investment that was made nearly a quarter-century ago in anticipation of farming the entire ownership."

Allegretti concedes an ability to irrigate and farm four to eight hundred acres of its property even if County's permit condition were in effect and therefore this has not been a total regulatory taking. Allegretti misstates the requisite economic deprivation to constitute a categorical regulatory taking: we do not assess whether a regulation deprives some or even a vast majority of economic use; as Lingle most recently emphasized it must deprive an owner of all economically beneficial use of the land. (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2081].) The trial court ruled County's permit condition did not result in such a deprivation on a finding that a significant portion of the property is farmed by a tenant who was paying Allegretti rent. Allegretti does not challenge the evidence to support this factual finding and indeed, Michael Morgan, Allegretti's tenant, who leased 1686 acres of Allegretti's property at $75 per acre, testified he had "upwards of 800 acres" in production at the time of trial.^[1]

B. Penn Central Analysis

When a regulation does not result in a physical invasion and does not deprive the property owner of all economic use of the property, a reviewing court must evaluate the regulation in light of the Penn Central factors. (Kavanau v. Santa Monica Rent Control Board (1997) 16 Cal.4th 761, 775 (Kavanau).) "Penn Central emphasized three factors in particular: (1) '[t]he economic impact of the regulation on the claimant'; (2) 'the extent to which the regulation has interfered with distinct investment-backed expectations'; and (3) 'the character of the governmental action.' " (Kavanau, 16 Cal.4th at p. 775; accord, Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at pp. 2081-2082]; Palazzolo v. Rhode Island, supra, 533 U.S. at p. 633.)

These above-enumerated factors are the sole criteria on which Allegretti relies in asserting its taking claim. We may dispose of a takings claim on the basis of one or two of these factors. (Bronco Wine v. Jolly (2005) 129 Cal.App.4th 988, 1035, citing Maritrans Inc. v. United States (Fed.Cir.2003) 342 F.3d 1344, 1359 [where the nature of the governmental action and the economic impact of the regulation did not establish a taking, the court need not consider investment-backed expectations] & Ruckelshaus v. Monsanto Co. (1984) 467 U.S. 986, 1005 [disposing of takings claim relating to trade secrets solely on absence of reasonable investment-backed expectations] & Andrus v. Allard (1979) 444 U.S. 51, 65-68.)

Applying the three Penn Central factors relied upon by Allegretti does not persuade us to find County's action constitutes a regulatory taking. Importantly, the basis for this factual inquiry "is the owner's entire property holdings at the time of the alleged taking, not just the adversely affected portion." (Buckley v. California Coastal Com. (1998) 68 Cal.App.4th 178, 193, citing Keystone Bituminous Coal Assn. v. DeBenedictis (1987) 480 U.S. 470, 497.) Thus the relevant parcel is Allegretti's 2400 acres, and not merely its right to draw water from it. (E.g., Florida Rock Indus. Inc. v. United States (Fed. Cl. 1999) 45 Fed.Cl. 21, 33.)

Beginning with the last mentioned Penn Central factor, the character of the governmental action, County's action did not physically invade or appropriate Allegretti's property or groundwater. Accordingly, that factor does not support a taking. (See Connolly v. Pension Ben. Guar. Corp. (1986) 475 U.S. 211, 225; Golden Cheese Co. v. Voss (1991) 230 Cal.App.3d 727, 738-739.)

As for the economic impact of County's regulation, Allegretti concedes it did not establish the precise amount of such an impact through expert testimony at trial, but maintains such testimony is unnecessary because it is plain that County's action has restricted Allegretti's ability to draw water to the capacity of its existing wells, thus limiting its farm production to between 400 and 800 acres of a 2,400 parcel. Allegretti criticizes the trial court's reliance on the fact Allegretti was receiving rental income on a portion of the property, claiming the preservation of "some economically beneficial use" is not sufficient to constitute a defense in the County's favor.

In addressing economic impact, we ask whether the regulation "unreasonably impair[s] the value or use of [the] property" in view of the owners' general use of their property. (E.g., PruneYard Shopping Center v. Robbins (1980) 447 U.S. 74, 83.) Not only is the use to which the property owner puts his or her property important, but the economic impact needs to be considered in the context of other laws and regulatory schemes. (See Connolly v. Pension Benefit Guar. Corp., supra, 475 U.S. 211, 225-226 [evaluating economic impact of imposing withdrawal fees on employers who leave pension funds within context of entire ERISA scheme].) We note the U.S. Supreme Court has repeatedly upheld land use regulations that destroy or adversely affect real property interests. (Keystone Bituminous Coal Assn. v. DeBenedictis, supra, 480 U.S. at p. 489, fn. 18.) Allegretti has not demonstrated any economic impact from County's 12,000 acre/feet per year limitation other than unspecific lay testimony regarding reduced profits via a below market rental rate or diminution in value as a result of its inability to use the entirety of its 2400-acre property for farming. It is well established that mere diminution in value of property, however serious, does not constitute a taking. (Concrete Pipes and Products of California, Inc. v. Construction Laborers Pension Trust for Southern Cal. (1993) 508 U.S. 602, 645, citing Village of Euclid v. Ambler Realty Co. (1926) 272 U.S. 365 [approximately 75% diminution in value]; Hadacheck v. Sebastian (1915) 239 U.S. 394, 405 [92.5% diminution]; see also Long Beach Equities, Inc. v. County of Ventura (1991) 231 Cal.App.3d 1016, 1036; Penna. Coal Co. v. Mahon (1922) 260 U.S. 393, 413 ["[g]overnment hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law"].) Under Penn Central, regulations that prohibit the "most beneficial use of the property" or which prohibit "a beneficial use to which individual parcels had previously been devoted and thus cause[] substantial individualized harm" are not takings. (Penn Central, supra, 438 U.S. at p. 125.) Like most land use regulations, the ordinance may have " ' "the inevitable effect of reducing the value of regulated properties," ' " but even a " ' "significant diminution in value is insufficient to establish a confiscatory taking." ' " (Terminal Plaza Corp. v. City and County of San Francisco (1986) 177 Cal.App.3d 892, 912, quoting Griffin Development Co. v. City of Oxnard (1985) 39 Cal.3d 256, 267.)

Allegretti has not demonstrated compensable interference with "distinct investment backed expectations" (Penn Central, supra, 438 U.S. at p. 124; Kavanau, supra, 16 Cal.4th at p. 781) by County's 12,000 acre/feet per year limitation. The sole evidence on which it relies is Joe Allegretti's testimony that he purchased the land for $2.5 million and made improvements with the expectation he could farm all 2,400 acres and make a substantial profit off the investment. It also points to Joe Allegretti's testimony that he could farm more acres if he had more operable wells, and testimony from Allegretti's tenant that he intended to farm all 1686 acres, but could not because there was not enough water. Citing City of Barstow v. Mohave Water Agency, supra, 23 Cal.4th at p. 1224, Allegretti asserts it "has the right to put to use as much of that water as it needs in order to irrigate its cropland."

There are several flaws in this argument. First, the evidence does not reveal distinct, as opposed to abstract, expectations. Joe Allegretti's testimony was only that he had purchased the farm having been given "lots of reassurances that it could be a viable farming operation" (emphasis added) and that his investment had not yet reached expectation.^[2] A " 'reasonable investment-backed expectation' " must be more than a

" 'unilateral expectation or an abstract need.' " (Ruckelshaus v. Monsanto Co., supra, 467 U.S. at pp. 1005-1006.) Further, as our high court in City of Barstow acknowledged, although an overlying user such as Allegretti may have superior rights to others lacking legal priority, Allegretti's water "right" is nonetheless restricted to a reasonable beneficial use consistent with article X, section 2 of the California Constitution. (City of Barstow v. Mohave Water Agency, supra, 23 Cal.4th at p. 1240.) Allegretti's claim to an unlimited right to use as much water as it needs to irrigate flies in the face of that standard, and it has not pointed to any evidence in the record that its proposed irrigation of all 2400 acres would be reasonable within the meaning of the constitutional restriction. Second, Allegretti's claim is essentially that it has lost "at least the potential for substantial profits." Allegretti's claim of loss of anticipated profits or gain is not compensable, as it "demonstrate[s] no more than a possible restriction upon more economic uses of its property." (Terminal Plaza Corp. v. City and County of San Francisco (1986) 177 Cal.App.3d 892, 912.) Because of its very uncertainty, the interest in anticipated gains has traditionally been viewed as less compelling than other property-related interests. (Andrus v. Allard, supra, 444 U.S. at p. 66.) For the foregoing reasons, Allegretti's claim of a regulatory taking under Penn Central is not persuasive.

C. Whether County's Action Substantially Advances a State Interest Is No Longer A Valid Standard to Assess An Unconstitutional Taking Under the Fifth Amendment

Applying the standard of Agins v. City of Tiburon (1980) 447 U.S. 255, 260 (Agins), that a regulatory taking be found when an ordinance "does not substantially advance legitimate state interests," Allegretti maintains County's permit condition effects a taking because an act taken without jurisdiction and arbitrary as a matter of law is incapable of furthering or advancing any legitimate governmental objective.

In Lingle, the court reconsidered the validity of Agins's "substantially advance[s] state interests" standard as a "stand-alone regulatory takings test" and disavowed it, concluding it "prescribes an inquiry in the nature of a due process, not a takings test, and that it has no proper place in our takings jurisprudence." (Lingle, supra, 544 U.S. at

p. ___ [125 S.Ct. at p. 2083].) The "substantially advances" inquiry, the Court explained, "reveals nothing about the magnitude or character of the burden a particular regulation imposes upon private property rights. Nor does it provide any information about how any regulatory burden is distributed among property owners. In consequence, this test does not help to identify those regulations whose effects are functionally comparable to government appropriation or invasion of private property; it is tethered neither to the text of the Takings Clause nor to the basic justification for allowing regulatory actions to be challenged under the Clause." (Id. at p. ___ [125 S.Ct. p. 2084].) Further, the " 'substantially advances' inquiry is prior to and distinct from the question whether a regulation effects a taking, for the Takings Clause presupposes that the government has acted in pursuit of a valid public purpose . . . . Conversely, if a government action is found to be impermissible – for instance because it fails to meet the 'public use' requirement or is so arbitrary as to violate due process – that is the end of the inquiry. No amount of compensation can authorize such action." (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2085].) Finally, application of the Agins formula is practically difficult to apply, requiring courts to scrutinize the efficacy of a vast array of state and federal regulations, and empowers courts to improperly substitute their judgments for that of the legislature or expert administrative agencies. (Lingle, supra, 544 U.S. at p. ___ [125 S.Ct. at p. 2085].)

In its reply brief, Allegretti maintains while the Agins formula is no longer viable under the Fifth Amendment, it remains part of California takings law, in part based on the use of that standard by the California Supreme Court in Landgate, Inc. v. California Coastal Com. (1998) 17 Cal.4th 1006 (Landgate). Even if that were the case, the test does not assist it. As we explain below, applying Landgate's test, County's action does not constitute a taking.

V. Application of Landgate

The Attorney General, as amicus curiae for County, contends we need not reach the question whether County's action constitutes a taking under Penn Central because any regulatory taking claim by Allegretti is one involving a temporary taking that is procedurally barred by the California Supreme Court's decision in Landgate, supra, 17 Cal.4th 1006. County reiterated that position at oral argument before us. While Allegretti criticized the trial court's analysis of Landgate in its appellate briefs, it urged us to apply Landgate at oral argument on this matter, arguing it supports its assertion of an unconstitutional taking under Agins, supra, 447 U.S. 255 as a matter of California law. Although it is not clear whether Allegretti proceeds on the theory of a permanent or temporary taking, we nonetheless address Landgate because Allegretti seeks to apply Agins' substantially-advances-state interests test on the ground Landgate retains its viability. We conclude that Allegretti's takings claim cannot succeed even under Landgate's standards.^[3]

Landgate assessed whether an erroneous land use decision – in that case, a permit denial by the California Coastal Commission – could be the foundation for the owner to recover damages for a temporary taking,^[4] or whether it was a noncompensable " 'normal delay' " in development. (Id. at pp. 1010, 1018.) In that case, the landowner had obtained a court judgment that the Coastal Commission had no permit jurisdiction over a lot line adjustment, and contended the delay in development denied it all viable use of its property for two years. (Id. at pp. 1014-1015.)

The Court of Appeal, after concluding the permit denial was erroneous, held there was a temporary taking because the agency had an improper motive for denying the permit. (Landgate, supra, 17 Cal.4th at pp. 1015-1016.) The California Supreme Court reversed, holding a delay in the regulatory process as the result of a mistaken assertion of jurisdiction could not constitute a taking: "[G]overment land use regulations and decisions . . . which, despite their ultimately determined statutory defect, are part of a reasonable regulatory process designed to advance legitimate government interests, are not takings of property . . . ." (Id. at p. 1021, citing Agins, supra, 447 U.S. at p. 260.) The court analogized the situation to that in Agins, where the government's abandonment of condemnation proceedings, causing a substantial delay in the development approval process and leading to losses in the property's value, did not constitute a taking. (Landgate, supra, 17 Cal.4th at p. 1021.)

In Landgate, the court pointed out the landowner had "not demonstrated that the development delay . . . was due to anything other than a bona fide dispute over the legality of [the landowner's] lot and the [Coastal] Commission's jurisdictional authority over the lot line adjustment. Such delay is an incident of property ownership and not a taking of property. [Citation.] Although [the landowner] was in the unfortunate position of suffering from a delay not of its own making, the same can be said of any governmental mistake or, for that matter, any number of possible bottlenecks in the development process." (Landgate, supra, 17 Cal.4th at pp. 1031-1032.) Under Landgate, no taking occurs if objectively there is "sufficient connection between the land use regulation in question and a legitimate governmental purpose, so that the former may be said to substantially advance the latter." (Landgate, supra, 17 Cal.4th at p. 1022, citing Nollan v. California Coastal Comm'n (1987) 483 U.S. 825,

836-837 & Dolan v. City of Tigard (1994) 512 U.S. 374, 391.) The court distinguished situations where government action is "so unreasonable from a legal standpoint as to lead to the conclusion that it was taken for no purpose other than to delay the development project before it. Such a delaying tactic would not advance any valid government objective." (Landgate, at p. 1024.) The Attorney General compares this situation to Landgate, characterizing our prior decision in Allegretti I as holding County did not have jurisdiction to impose water use restrictions due to inadequate standards in the ordinance. Assuming the correctness of the Attorney General's characterization of our decision, we agree Landgate is dispositive of any taking alleged by Allegretti to have occurred during the permit process and resulting litigation. The permit condition, imposed under County's police power for the purpose of conserving groundwaters and preventing their undue waste, had an objectively sufficiently connection to that valid governmental interest. (See In re Maas (1933) 219 Cal. 422, 424-425 [general police powers of counties permit them to adopt ordinances for the conservation of groundwater when such ordinances do not conflict with any general law of the State]; Baldwin v. County of Tehama, supra, 31 Cal.App.4th at pp. 173-174.) Allegretti does not identify and thus does not meaningfully challenge County's underlying reasons for its action, nor does it explain why County's limitation is in any way arbitrary; it merely asserts County' action "could not substantially advance any interest" because it was without jurisdiction. But as stated, Landgate merely requires that we objectively assess whether there exists a "sufficient connection between the land use regulation in question and a legitimate governmental purpose." (Landgate, supra, 17 Cal.4th at p. 1022.) We find such a connection here.

Citing Wisconsin authority that does not bind us (Eberle v. Dane County Bd. of Adjustment (Wis. 1999) 595 N.W.2d 730), Allegretti criticizes Landgate for reasoning that litigation can be part of the normal regulatory process. It also seeks to distinguish Landgate, pointing out the delay in that case was only two years, whereas the delay here was more than 10 years. We find neither of Allegretti's points persuasive. As for the first, we are bound by Landgate's analysis. (Landgate, supra, 17 Cal.4th at p. 1019 [approving authority involving delay caused by process of presenting a judicial challenge to regulation].) As to the latter, as County points out, such lengthy delays can be part of the normal regulatory process. (E.g. Calprop Corp. v. City of San Diego (2000) 77 Cal.App.4th 582, 600-601.)

Allegretti's main argument as to Landgate's application is that County's acts were "so unreasonable from a legal standpoint" that they had no true, legitimate purpose. Allegretti also suggests the litigation between it and County does not constitute a "bona fide dispute." (Landgate, supra, 17 Cal.4th at p. 1031.) Comparing the circumstances to those in Ali v. City of Los Angeles (1999) 77 Cal.App.4th 246 (Ali), it argues "County's insistence initially in asserting jurisdiction, and then in continuing to assert jurisdiction after this Court explained its total absence, and then failing to take any measures to augment its ordinance after this Court explained its utter inadequacy . . . demonstrates that the County cannot bring itself within the shelter of Landgate."

This case is not comparable to Ali, in which the City's action in denying a demolition permit under a single room occupancy (SRO) ordinance, temporarily depriving the property owner of all economically viable use of his land, was held to be prohibited by the Ellis Act (Govt. Code, § 7060, subd. (a)). (Ali, supra, 77 Cal.App.4th at pp. 248, 252-253, 255.)^[5] The appellate court concluded that the City's continued invocation of the SRO ordinance was not a normal delay in the development process within the meaning of Landgate, observing that because the illegality of the City's action was apparent from case authority existing before the City initially withheld the permit, its position was " 'so unreasonable from a legal standpoint' . . . as to be arbitrary, not in furtherance of any legitimate governmental objective, and for no other purpose than to delay any development other than for an SRO hotel." (Ali, at p. 255.) Here, County's initial action in imposing the permit condition under its police power was not objectively unreasonable, particularly where the trial court had initially accepted its argument, and its arguments before us in Allegretti I were plausible. (See Landgate, supra, 17 Cal.4th at p. 1020, citing Littoral Development Co. v. San Francisco Bay Conservation Etc. Com. (1995) 33 Cal.App.4th 211, 221 [government's actions "were facially valid and supported by a plausible though erroneous legal argument [that] the trial court accepted"].) Nor can we say County's continued defense against Allegretti's inverse condemnation action following our decision in Allegretti I was objectively unreasonable. Our conclusion in Allegretti I was on its face based solely on the standards set out in Imperial County Ordinance sections 56350 et seq.; our opinion expressly acknowledged the possible existence outside the record of further standards by which County could regulate Allegretti's groundwater use. That County ultimately did not present additional standards at trial on Allegretti's inverse condemnation action did not render its defense of that action objectively unreasonable. This is particularly true where, in its inverse condemnation action, Allegretti did not seek to merely litigate the validity of County's restriction (indeed, by the time of trial Allegretti had already rejected County's permit); it sought damages for County's purported physical taking of its groundwater. County had every right to maintain a defense based on its perceived lack of a constitutionally compensable taking.

Assuming the circumstances of this case warrant application of Landgate, our conclusion ends the analysis: "Once a court determines that a governmental entity engaged in decision-making whose purpose is not delay for delay's sake but legitimate oversight, the question of whether a landowner has a reasonable investment-backed expectation that is impacted in a manner requiring compensation is, of necessity, answered in the negative. A landowner can have no reasonable expectation that there will be no delays or bona fide differences of opinion in the application process for development permits. Sometimes the application process must detour to the court process to resolve a genuine disagreement. Because such delay comes within the Landgate category of normal delays in the development approval process, there is no taking even if the value of the subject property is diminished in some way." (Loewenstien v. City of LaFayette, supra, 103 Cal.App.4th at pp. 736-737.)

DISPOSITION

The judgment is affirmed.

O'ROURKE, J.

WE CONCUR:

HUFFMAN, Acting P. J.

McDONALD, J.

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

THE COURT:

The opinion filed March 28, 2006, is ordered certified for publication.

The attorneys of record are:

Manatt, Phelps & Phillips, Michael M. Berger; and Jeffrey L. Marcus for Plaintiff and Appellant.

Imperial County Counsel, Ralph Cordova, Joanne Yeager; Rossmann & Moore, Antonio Rossmann, Roger B. Moore, David R. Owen; Gibbs & Fuerst, Michael T. Gibbs; Stephenson, Worley, Garratt, Schwartz, Garfield & Prairie and Donald R. Worley for Defendant and Respondent.

Bill Lockyer, Attorney General, Thomas Greene, Assistant Attorney General,

J. Matthew Rodriquez, Joseph Barbieri and Tara L. Mueller, Deputy Attorneys General as Amicus Curiae on behalf of Defendant and Respondent.

HUFFMAN, Acting P. J.

Publication courtesy of California free legal advice.

Analysis and review provided by Carlsbad Apartment Manager Attorneys.

^[1] 800 acres was one half the cultivatable portion of the property. Joseph Allegretti, who purchased the property in 1981, testified that out of the 2400 acres presently encompassing Allegretti's farm, the most its tenant had ever farmed was 900 acres in 1988; at the time of trial only 1,800 acres were cleared for farming, and 1600 acres were cultivatable.

^[2] Joe Allegretti further testified: "When we originally purchased the property we thought that we could farm at least as much land as the previous owner had farmed. We didn't give a lot of thought to farming on the north side of the highway. But we thought that everything we owned on the south side of the highway was doable." The evidence of Allegretti's expectation is too general to meet the requisite Penn Central factor.

^[3] Given our conclusion, we need not address the duration of any such temporary taking or its beginning and endpoints, i.e., whether it was triggered by the County's grant of the conditional permit or by our decision in Allegretti I, and whether it endures until the trial court's order for judgment is final on appeal.

^[4] In First English Evangelical Lutheran Church of Glendale v. Los Angeles County (1987) 482 U.S. 304, the United States Supreme Court identified two reasons why a regulation temporarily denying an owner all use of her property might not constitute a taking, one involving questions that "arise in the case of normal delays in obtaining building permits, changes in zoning ordinances, variances, and the like," issues that were not before the court in that case. (Id. at p. 321; Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, supra, 535 U.S. at pp. 328-329.)

^[5] One court has noted criticism of Ali's reasoning. (Loewenstein v. City of Lafayette, supra, 103 Cal.App.4th at p. 735, citing Alperin, The "Takings" Clause: When Does Regulation "Go Too Far?" (2002) 31 Sw.U.L.Rev. 169, 221-225.)