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CES In The News

Daily Journal
Monday June 2, 2008
Prop 98 Doomed by Rent Control Provisions, Experts Say
By Peter B. Matuszak and Fiona Smith, Daily Journal Staff Writers

This Picture Does Not Appear With the Original Article
To the chagrin of attorneys who represent property owners in eminent domain cases, a statewide ballot proposition aimed at restricting governmental seizure of property for private use has not attracted a favorable response.

A provision in Proposition 98 that would also end rent control in California has attracted a broad spectrum of opponents to the proposed law.

The Coalition for Economic Survival
, an affordable housing advocacy group, staged a small but visible rally in front of Los Angeles City Hall on Wednesday.

Larry Gross, the group's executive director, along with representatives from the American Civil Liberties Union, AARP, labor unions and minority rights groups, spoke out against the proposed eminent domain law that will be presented to voters on the June 3 ballot.

Gross said, despite recent polls showing little support for Proposition 98, he feels having the law on the midyear election ballot is "dangerous."

"Landlords did this on purpose because it is a low-turnout election," he said. "But these measures affect everyone, so we will be running phone banks all weekend just to be sure we get out the vote."


A poll released Thursday by the Field Research Corporation showed only 33 percent of voters intended to vote in favor of Proposition 98. The survey also found 48 percent of expected voters supported Proposition 99, which overrides the measure and enacts limited eminent-domain protections aimed at single-family homeowners. Twenty percent of voters remained undecided on the competing laws.

In California, a ballot measure needs to win the support of a majority of voters in an election to amend the state Constitution and become law.

Proposition 98 - touted by a coalition of property rights advocates, landlords and taxpayer groups - bars the government from condemning private property and then passing it onto private developers.

The law also would force local governments to pay for attorney fees anytime a property owner successfully sues and is granted more money than was originally offered during condemnation negotiations.

But Proposition 98's attempt to eliminate rent control, and what some critics call vague language in the proposal, could have the far-reaching consequence of limiting land-use regulation across the state.

"[Proposition 98] is a sledgehammer approach to what needs a surgical approach," Gross said.

John Murphy, a land use partner in the Orange County office of Luce, Forward, Hamilton & Scripps, supports Proposition 98 but said many proponents regret that the rent-control provisions were added to the measure.

"I have heard several different people say it's unfortunate that the two somewhat different reform efforts were yoked together in Prop. 98," Murphy said. "The anti-rent-control portion has attracted a lot of opposition money."

The AARP has been running television commercials against Proposition 98. The California League of Cities, which represents nearly every local government in the state, wrote Proposition 99 and mobilized its membership to support the countervailing proposal.

However, despite Murphy's misgivings, the rent-control portion is thought to be what attracted much of the $2 million donated by landlords and property owners in support of Proposition 98.

Sam Zell, the founder of Equity Residential, owns 120,000 properties across the state and personally donated $50,000 to the cause.

Both measures take aim at a controversial 2005 U.S. Supreme Court decision that allows governmental agencies to take private property through eminent domain and pass it on to a private property owner as long as it furthers the city's economic interests. Kelo v. City of New London, 545 U.S. 469 (2005).

The Kelo decision has sparked a backlash with more than 40 states changing their laws to block this use of eminent domain, according to Richard Frank, executive director of the California Center for Environmental Law & Policy at the UC Berkeley School of Law, who issued a report analyzing the two propositions.

Proponents of Proposition 98 tried and failed to get enough votes for a similar measure when Proposition 90 appeared on the ballot in 2006. That measure lost by a narrow 2.4 percent margin.

Proposition 99, which is also backed by labor unions, affordable housing groups and environmentalists, bars the government from using eminent domain to take an owner-occupied, single-family home in order to give the land to a private person or business. It has an exception for public works, public health and crime prevention.

But Murphy, who heads his firm's eminent-domain and land-use practice, points out that the law has no protection for commercial property.

One of his clients, Victor Gudzunas, owns a strip mall adjacent to city property in La Puente. Murphy said Gudzunas is in the process of settling his eminent-domain case against the city's redevelopment agency for $6.2 million. Gudzunas was offered only $3.5 million from the agency before taking it to court. La Puente Redevelopment Agency v. Gudzunas, BC369824 (L.A. Super. Ct., filed June 14, 2007).

Lisa Holmes, an associate working with Murphy on the case, said Gudzunas' strip mall was at full occupancy when the city began condemnation proceedings.

Both attorneys said Proposition 99 would not have protected their client, but that Proposition 98 would have prevented the taking.

"Prop. 99 is reform-light," Murphy said. "It's really reform in name only."

Since Proposition 99 applies only to single-family homes taken for redevelopment and given to private companies, Murphy said he found only three existing cases that the law would have affected.

"So it's a solution without a problem," Murphy said. "There are too many exceptions ... There is some question on whether this law will have any impact on anything."

A "poison pill" provision in Proposition 99 states that if it passes with more votes than the competing proposal, then Proposition 98 will not go into effect.

Many elected officials worry that if Proposition 98 passes, it would hinder redevelopment agencies across the state. The measure would allow governments to take land for public uses, such as schools and roads, and has exceptions for a government state of emergency, a public nuisance or criminal behavior.

But opponents claim Proposition 98 contains provisions that could also affect land-use regulations such as local affordable housing laws that require developers to set aside a certain portion of a housing development for low- or moderate-income people. The state Legislative Analyst's Office issued a report on the proposition that reasserts those claims.

The effect on land use could go beyond that, according to UC Berkeley's Frank.

The proposition could stand in the way of government projects like flood control, water storage or conveyance, or power projects, Frank said. It could also call into question a wide range of land-use regulations that property owners could argue would qualify as "taking" their property. Proposition 98's "regulatory takings" language could be used to challenge such things as local laws restricting building heights for beach-front property, Frank said.

"Our initiative has nothing to do with regulatory takings," said Timothy Bittle, an attorney with the Howard Jarvis Taxpayers Association, one of the groups authoring Proposition 98. "There's been a lot of misinformation about Proposition 98, which makes people think it's unclear because they look at the plain text of 98 and they don't see in there what the opponents say it will do."

While there's a debate about the meaning of Proposition 98, "a fair reading of the measure would allow a property owner to sue based on any regulation of the use of property no matter how insignificant," said John Echeverria, executive director of Georgetown University's Environmental Law & Policy Institute and author of a recent report on the regulatory takings reforms.

K. Erik Friess, a former protege of Murphy and chair of the eminent domain practice at Nossaman Guthner Knox & Elliott, said he supports the aims of Proposition 98. But its unclear language could give lawyers an opportunity to mount regulatory taking challenges, he said.

"Philosophically, I'm fine with 98, but I'm troubled with how it's been written. As an eminent domain lawyer, I think it will cause significant problems," Friess said.

While all may not agree on the substance of Proposition 98, "all attorneys agree, due to the vague and poorly worded language of Prop. 98, that some of these issues will have to go through the court process," said David Skinner, an Oakland partner at Meyers Nave Riback Silver & Wilson.

Murphy, who has represented clients on both sides of eminent domain disputes since 1982, disagrees.

"The only thing I have heard opponents question is the definition of 'takings,' " he said.

But there is a substantial amount of case law already on the books explaining the subject, he said.

Skinner, whose practice focuses on representing government clients, said Proposition 98 encourages property owners to go to trial and not sell, and would cause his clients to overpay for land to avoid litigation.

Before an eminent domain case goes to trial, the government must make a final offer to the property owner. The current system allows the court to determine what is a reasonable payment, Skinner said.

"Under Prop. 98, if the land owner even got $1 from the jury more than the public entity's final offer, then the public entity needs to pay for all the landowner's litigation expenses. ... To us in the business, it's a really big deal."

According to Murphy, eminent domain cases typically cost his clients, on average, $600,000 to $700,000 in legal fees. But some have totaled more than seven figures.

"If the eminent domain reforms in Prop. 98 were law, then redevelopment would work just like the free market," Murphy said. "Government would have to offer a fair price for property or they wouldn't be able to build their projects."


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