BILL ANALYSIS Ó AB 328 Page 1 Date of Hearing: March 15, 2011 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 328 (Smyth) - As Introduced: February 10, 2011 SUBJECT : Inverse Condemnation: Comparative Fault KEY ISSUES: 1)Should the doctrine of comparative fault be applied to actions in inverse condemnation? 2)Should the statute restricting the recovery of post-offer costs expressly apply to inverse condemnation actions? FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. SYNOPSIS This bill would apply both the doctrine of comparative fault and a statute limiting recovery of a plaintiff's post-offer costs to inverse condemnation actions. In short, under this bill, the court would treat damage awards in an inverse condemnation action in the same manner as a civil action between private parties. Under the California Constitution, a government entity must provide a property owner with "just compensation" whenever it takes or damages private property for a "public use." Typically, a government entity initiates a condemnation action against a private property owner when the property is needed for a public use. However, where a public use project proximately damages private property, the owner may bring an action in inverse condemnation against the relevant government entity. Unlike parallel tort actions, courts do not generally apply the doctrine of comparative fault in inverse condemnation actions. Thus, even if the property owner's negligence either partly, or even mostly, caused the property damage, the government entity is still required to compensate the property owner for 100% of the damages. The author and sponsor argue that exempting inverse condemnation from the comparative fault doctrine is unfair to financially strapped cities and counties that must bear full responsibility for costs, even if they are only minimally responsible for the damages. For similar reasons, the author argues that fairness requires expressly applying AB 328 Page 2 "post-offer" cost rules in inverse condemnation actions. Under Code of Civil Procedure Section 998 a plaintiff who rejects a settlement offer that exceeds the final judgment cannot recover any post-offer costs and may be required to pay the defendant's post-offer costs. Although the California Supreme Court has held that the post-offer statute applies to inverse condemnation cases, some courts have construed the statute's express exemption for "eminent domain" actions to encompass inverse condemnation actions. This bill would clarify the issue by expressly stating that Section 998 applies to inverse condemnation actions. The bill is sponsored by the Los Angeles City Attorney. There is no known opposition to this bill. SUMMARY : Applies the doctrine of comparative fault and existing rules governing a plaintiff's ability to recover post-offer costs to inverse condemnation actions. Specifically, this bill : 1)Requires a court or arbiter, in an inverse condemnation proceeding, to reduce the compensation to be paid to a plaintiff in direct proportion to his or her percentage of fault, if any, in the damaging of property that constitutes a taking. 2)Extends to actions in inverse condemnation an existing statute which provides that when a plaintiff rejects a defendant's settlement offer and then fails to obtain a more favorable judgment or award, then the plaintiff is prohibited from recovering his or her post-offer costs and is required to pay the defendant's costs from the time of the offer. EXISTING LAW : 1)Prohibits the government from taking or damaging private property for a public use without the payment of just compensation and permits a person to maintain an action in inverse condemnation for the purpose of obtaining compensation for the taking or damage. (California Constitution Article 1, Section 19.) 2)Provides that for purposes of apportioning liability a plaintiff's damages may be reduced in direct proportion to his or her percentage of fault. (Li v. Yellow Cab (1975) 13 Cal.3d 804.) AB 328 Page 3 3)Exempts from the above comparative fault rule an inverse condemnation action, except in certain actions relating to damages caused by public flood control projects. ÝBlau v. City of Los Angeles (1973) 32 Cal. App. 3d 77; Locklin v. City of Lafayette (1994) 7 Cal. 4th 327; Bunch v. Coachella Valley Water District (1997) 15 Cal 4th 432.] 4)Provides that, in any trial or arbitration, if an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her post-offer costs and shall pay the defendant's costs. Provides, in addition, that in any action or proceeding other than an eminent domain action, the court or arbitrator may require the plaintiff to pay reasonable costs for expert witnesses, as specified. (Code of Civil Procedure Section 998(c).) 5)Holds that the Legislature perceives a difference between "eminent domain" and "inverse condemnation," and therefore the Legislature does not intend for its reference to eminent domain in Code of Civil Procedure Section 998 to encompass inverse condemnation proceedings. (Regency Outdoor Advertising, Inc. v. City of Los Angeles (2006) 39 Cal 4th 507, 530.) 6)Permits a prevailing plaintiff (property owner) in an inverse condemnation action to recover reasonable litigation costs, including reasonable attorney fees. (Code of Civil Procedure Section 1036.) COMMENTS : According to the author and sponsor, the failure to apply well-established comparative fault doctrine to inverse condemnation actions "results in a windfall to the plaintiff and seriously burdens the governmental agency and its residents." Whereas plaintiffs in other actions are held responsible for their portion of the damage, the public entity in an inverse condemnation action must foot the entire cost, even if the plaintiff was responsible for a greater portion of the damage. This bill would expressly provide that the doctrine of comparative fault shall apply to actions in inverse condemnation. In addition, the bill would expressly apply to inverse condemnation actions the post-offer cost rules of Code of Civil Procedure Section 988. That statute provides that if a plaintiff rejects a settlement offer that turns out to be more than the final judgment awarded, then the plaintiff cannot AB 328 Page 4 recover post-offer costs and may be required to pay the defendant's post-offer costs. In short, this bill seeks, when appropriate, to limit a plaintiff's recovery in inverse condemnation actions in the same manner that it would be limited in a civil action between private parties. Background : In 1975 California adopted the doctrine of "comparative fault" in Li v. Yellow Cab (1975) 13 Cal.3d 804. Under this tort doctrine, a plaintiff's damages may be reduced in direct proportion to his or her percentage of fault. Although the principle of comparative fault is well-established in tort law, it has not generally been applied to other kinds of actions, including actions in inverse condemnation against a government entity for damage to private property. Indeed, California courts developed a general rule that a public entity is liable for the full injury if a public use project or improvement was a "substantial cause" of the injury, even if the plaintiff property owner substantially contributed to the injury through his or her own fault. (Blau v. City of Los Angeles (1973) 32 Cal. App. 3d 77.) Significantly, since the 1990s the California Supreme Court has carved out an exception to the exception, so to speak, in the case of damages caused by a public flood control project. In those cases, comparative fault applies and the public entity is only liable for that portion of damages that it caused. (Locklin v. City of Lafayette (1994) 7 Cal 4th 327; Bunch v. Coachella Valley Water District (1997) 15 Cal 4th 432.) Applying comparative fault to inverse condemnation actions, therefore, would not be completely unprecedented where a government entity contributed to property damage, as courts have already applied comparative fault in cases arising out of the failure of a public flood control project. Does the Reference to "Eminent Domain" in CCP Section 998 Include "Inverse Condemnation" Actions? Enacted as an effort to encourage early settlement, Section 998 of the Code of Civil Procedure (CCP) governs the manner in which parties may make a written settlement offer prior to the commencement of trial or arbitration. However, the precise wording of the statute has given rise to some confusion as to its application to eminent domain proceedings. Subdivision (c) of Section 998 provides that if a plaintiff rejects a defendant's offer and then fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her post-offer costs and shall pay the defendant's costs from the time of the offer. This subdivision AB 328 Page 5 then states that, "in addition," a plaintiff who rejects an offer may be required to pay expert witness fees "in any action or proceeding other than an eminent domain action ." ÝEmphasis added.] Subdivision (f) then adds that the entire chapter on offers to compromise does not apply to "an offer that is made by a plaintiff in an eminent domain action." If inverse condemnation is included within the meaning of eminent domain, then the post-offer cost restrictions would not, under existing law, apply to actions in inverse condemnation. If, on the other hand, inverse condemnation is not included within the meaning of eminent domain, then post-offer cost restrictions arguably already apply to actions in inverse condemnation. Case Law on Applicability of CCP Section 998 to Inverse Condemnation Actions : There is no case law that definitively applies Section 998 to actions in inverse condemnation. Although at least one appellate court has held that CCP Section 998 treats "eminent domain" and "inverse condemnation" synonymously (Orpheum v. BART (1978) 80 Cal. App.3d 863, 878), more recent decisions by the California Supreme Court and another appellate court hold that the references to "eminent domain" actions in Section 998 were not intended to include actions in inverse condemnation. (Goebel v. City of Santa Barbara (2001) 92 Cal. App. 4th 549, 558-559; Regency Outdoor Advertising, Inc. v. City of Los Angeles (2006) 39 Cal 4th 507, 530.) However, these latter cases did not completely resolve the issue because, although at least one of the opinions expressed disagreement with the earlier Orpheum opinion in dictum, it also distinguished Orpheum because in that case the plaintiff prevailed, while in the latter two the government entity prevailed. Therefore, one could arguably construe Goebel and Regency as only applying the post-offer cost statute to cases in which the government entity prevails and is seeking its post-offer costs, but not to cases in which the plaintiff prevails but wins a judgment that is less than the settlement offer. This bill would clarify the potential confusion arising out of these cases by stating expressly that Section 998 applies to an action in inverse condemnation for the purpose of reducing the compensation paid to a prevailing plaintiff in appropriate cases. Code of Civil Procedure Section 1036, in general, guarantees a plaintiff's right to recover costs in an inverse condemnation, but this bill would clarify that, like any other plaintiff, that recovery may be reduced if the plaintiff has rejected a settlement offer that is more than the final award. AB 328 Page 6 ARGUMENTS IN SUPPORT : According to the Los Angeles City Attorney's Office, the rationale for both the comparative fault doctrine and the statute governing post-offer costs serve important public purposes. "The long-standing rationale behind the rule of comparative fault," the author states, "is to allocate responsibility and liability for damage by the actual proportion of the fault of the persons whose negligence caused the injury. To do otherwise, results in a situation that creates unjust enrichment for one side over the other." Similarly, CCP Section 998, the author notes, "is designed to encourage settlements and alleviate unnecessary burdens upon our court system." In order to better promote "fairness and efficiency" the author believes that "both rules should be applied to inverse condemnation actions, particularly in this time of economic distress. Government agencies should only be made responsible for their proportionate share of the costs and damages awarded in inverse condemnation cases." REGISTERED SUPPORT / OPPOSITION : Support Los Angeles City Attorney's Office (sponsor) Opposition None on file Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334