AN UNREASONABLE FINAL OFFER

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On May 26, 2015 a California Court of Appeal sent a clear message to public entities that any final offer of settlement be free from conditions of approval, making preparation and planning for presentation of a final offer key in the final stages of settlement negotiation in eminent domain litigation.

In a decision issued by the First District in City and County of San Francisco v. PCF Acquisitionco, LLC (2015) 237 Cal.App.4th 90, the Court determined that a final offer of settlement by a condemnor pursuant to Code Civ. Proc. Section 1250.410 that is conditioned upon approvals of governing bodies is not reasonable, thus exposing the condemnor to liability for litigation expenses.

The City and County of San Francisco filed an action in eminent domain to acquire a site for a future subway station. Valuation data was exchanged ranging from a low of $3,800,000 to a high of $10,875,000. Twenty days before trial the parties exchanged their final offers/demands in an attempt to settle the matter pursuant to Code Civ. Proc. Section 1250.410. The City’s offer for $5,000,000 was expressly made contingent upon approval by the Federal Transportation Authority, the Board of Directors of the San Francisco Municipal Transportation Agency, and the San Francisco Board of Supervisors. The parties did not reach a settlement and the case went to trial where the jury awarded PCF Acquisitionco $7,319,000. PCF Acquisitionco then moved to recover its litigation expenses under CCP 1250.410 arguing that the City’s offer was unreasonable because it was conditioned on obtaining approvals from other governing bodies. The underlying court denied the motion and did not address the question of whether the conditions on the offer of settlement made the offer unreasonable.

The Court of Appeal addressed the narrow issue of whether a final offer of settlement is reasonable if made contingent upon approvals by other governing bodies. The Court found that the choice of entering into an uncertain and contingent bargain or risk losing its litigation expenses was unreasonable under the meaning set forth by the statute, thus triggering the condemnor’s liability for litigation expenses. The Court stated “In these circumstances, the City’s final offer was not really an offer at all.” The underlying court’s order was reversed and the case was remanded for further proceedings.

The holding provides minimal practical guidance to public agencies. It remains to be seen how agencies will obtain approvals for final offers given the timing requirements for convening their governing bodies. Also a concern is obtaining all essential approvals prior to actual possession and control of the property at issue. Further, agencies will have to deal with the potential prejudicial effects of disclosure of litigation strategy and settlement posture to the public in open meetings prior to presenting the offer to the opposing party.

This decision will result in even more concentrated efforts to secure agreements with property owners. Consideration in closed session to discuss and approve litigation strategy and settlement posture is ideal. Government agencies should plan ahead and get all approvals prior to the deadline for the exchange of final offers before trial. Planning ahead is particularly important where approvals from several government agencies (federal, state and local) are necessary. Otherwise, a final offer may be considered unreasonable and expose agencies to potential litigation expenses and costly attorneys’ fees awards.

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Kristen S. Steinke has an established practice focused on eminent domain, inverse condemnation, land use and real property-related litigation.  She represents public entities, land owners, developers, small businesses, contractors, and subcontractors. Native to San Diego, Ms. Steinke is the Chair of the Eminent Domain Section of the San Diego County Bar and is also a member of the San Diego chapter of Lawyers Club.

 

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