In Klopping v. City of Whittier (1972) 8 Cal.3d 39, the City of Whittier adopted a resolution on May 11, 1965, stating it intended to initiate proceedings to create a parking district. Plaintiffs' properties were included among those to be condemned.
On November 10, 1963, the city initiated eminent domain proceedings. Thereafter, the city imposed assessments on certain property owners to subsidize the cost of establishing the parking district. On February 23, 1966, one of the property owners to be assessed, Alpha Beta Acme Markets, Inc., filed suit against the city to enjoin the assessment. On July 7, 1966, the city adopted a second resolution, stating that because of the Alpha Beta suit, (1) it would be impossible to sell bonds to fund the parking district, (2) due to the inability to sell the bonds, the proposed acquisition of the properties could not go forward, and (3) it would not be fair and equitable to continue the "restraining effect" of the pending eminent domain actions on the use of the properties to be condemned. The resolution authorized the dismissal of the eminent domain actions but stated that the city would reinstate condemnation proceedings if and when the Alpha Beta suit was resolved in the city's favor. On November 16, 1966, the eminent domain actions were dismissed.
On July 6, 1967, while the Alpha Beta suit was still pending, two individuals who owned properties subject to the prior eminent domain actions filed claims with the city, seeking damages for the decline in the fair market value of their properties caused by the city's two resolutions and its announced intention to refile eminent domain actions if it prevailed in the Alpha Beta suit. The city rejected the individuals' claims, and the individuals (plaintiffs) filed inverse condemnation actions against the city. The city's demurrers were sustained without leave to amend as to any matters occurring before the city's eminent domain actions were dismissed but with leave to amend as to matters occurring after dismissal. The plaintiffs elected not to amend, and judgments were entered for the city. The plaintiffs appealed.
In concluding that the plaintiffs had stated a claim for relief, the Supreme Court described the nature of the plaintiffs' actions: "Plaintiffs claim the fair market value of their properties declined as a result of the city's two announcements of intent to condemn made prior to instituting eminent domain proceedings. They contend that because of the condemnation cloud hovering over their lands, they were unable to fully use their properties and that this damage, reflected in loss of rental income, should be recoverable." (Klopping, supra, 8 Cal.3d at pp. 45-46.)
The high court discussed the policy implications of recognizing the plaintiffs' theory of recovery, stating: "'It is a matter of common knowledge that a purchaser would not buy property in the process of being condemned except at a figure much below its actual value. It follows, therefore, that in arriving at the fair market value it is necessary that the jury should disregard not only the fact of the filing of the eminent domain case but should also disregard the effect of steps taken by the condemning authority toward that acquisition. To hold otherwise would permit a public body to depress the market value of the property for the purpose of acquiring it at less than market value.' . . . . . . However, we are also aware that to allow recovery under all circumstances for decreases in the market value caused by precondemnation announcements might deter public agencies from announcing sufficiently in advance their intention to condemn. The salutary by-products of such publicity have been recognized by this court . . . ; plaintiffs likewise agree that a reasonable interval of time between an announcement of intent and the issuance of the eminent domain summons serves the public interest. Therefore, in order to insure meaningful public input into condemnation decisions, it may be necessary for the condemnee to bear slight incidental loss. However, when the condemner acts unreasonably in issuing precondemnation statements, either by excessively delaying eminent domain action or by other oppressive conduct, our constitutional concern over property rights requires that the owner be compensated. This requirement applies even though the activities which give rise to such damages may be significantly less than those which would constitute a de facto taking of the property . . . ." (Klopping, supra, 8 Cal.3d at pp. 50-51.)
The court also noted: "To allow recovery in every instance in which a public authority announces its intention to condemn some unspecified portion of a larger area in which an individual's land is located would be to severely hamper long-range planning by such authorities . . . . On the other hand, it would be manifestly unfair and violate the constitutional requirement of just compensation to allow a condemning agency to depress land values in a general geographical area prior to making its decision to take a particular parcel located in that area." (Klopping, supra, 8 Cal.3d at p. 45, fn. 1.)
The Supreme Court concluded that "a condemnee must be provided with an opportunity to demonstrate that (1) the public authority acted improperly either by unreasonably delaying eminent domain action following an announcement of intent to condemn or by other unreasonable conduct prior to condemnation; and (2) as a result of such action the property in question suffered a diminution in market value." (Klopping, supra, 8 Cal.3d at p. 52.)
The court continued: "Here plaintiffs seek to prove at trial that the fair market value of their properties was diminished because of the precondemnation statements issued by defendant city. Specifically they allege that they were unable to fully use their properties and suffered a loss of rental income. It has long been established that rent is an appropriate criterion for measuring fair market value. . . . On the date on which an announcement of future intent to condemn is made, the market value may properly be measured by the anticipated rental income to be received throughout the lifetime of the property. If as a result of precondemnation statements rental income is lost, the anticipated rental income would be diminished and a decline in the fair market value would follow. While we reiterate that the valuation date set statutorily at the issuance of the eminent domain summons remains intact, if the steps taken toward condemnation are to be disregarded when the condemner acts unreasonably, the condemnee must be compensated for loss of rental income attributable to such precondemnation publicity. Rental losses occasioned by a general decline in the property value or by a natural disaster occurring prior to the date of taking must, however, be borne by the property owner." (Klopping, supra, 8 Cal.3d at p. 53.)
Turning to the plaintiffs' allegations, the Supreme Court commented: "Plaintiffs here have alleged that the city's actions were unreasonable and performed for the purpose of depressing the fair market value and preventing plaintiffs from using their land. The city announced on two separate occasions its intent to condemn. The first resolution was adopted on May 11, 1965; the second on July 7, 1966, at which time the city abandoned eminent domain proceedings for the stated reason that it was not 'fair and equitable' to maintain the cloud of condemnation over property owned by plaintiffs and others during the Alpha Beta challenge. Yet, in the same resolution the city recreated a cloud by announcing its intent to reinstitute condemnation proceedings if the Alpha Beta matter was resolved in the city's favor. This latter declaration appears to have no discernible relation to a desire to insure public input into the decision-making process since, presumably, discussion on the advisability and location of a parking district occurred at the time of the May 11, 1965, announcement. In any event, whether there was unreasonable delay or whether the July 7 announcement itself constituted unreasonable action on the part of defendant is a question of fact." (Klopping, supra, 8 Cal.3d at pp. 54-55.)
The availability of so-called "Klopping damages" was addressed in City of Los Angeles v. Superior Court (2011) 194 Cal.App.4th 210. There, the City of Los Angeles implemented a program of purchasing properties near the Los Angeles International Airport (LAX) through voluntary acquisition. Any structures on the acquired properties were demolished, leaving the land vacant.
The Court of Appeal explained the purpose of the program, saying: "In 1997, the City had begun implementing a 'Residential Soundproofing Program' in order to sound insulate residential dwellings near LAX. It learned, however, that the majority of homeowners and residents of the Manchester Square and Belford neighborhoods were not interested in soundproofing. A group of residents, supported by political leaders who represented the area, requested that the City purchase the properties in the area in lieu of soundproofing and presented survey evidence that the vast majority of residents of the area expressed a desire for buyout and relocation. This caused the City to develop the Voluntary Residential Acquisition and Relocation Program, which was approved by the Board of Airport Commissioners in July 2000. The Program was voluntary--'if an owner did not voluntarily indicate an interest in having his property purchased, the Airport would not seek to purchase that owner's property.' The Program required demolition of acquired properties because its objective was to mitigate incompatible residential land uses affected by noise from airport operations." (City of Los Angeles v. Superior Court, supra, 194 Cal.App.4th at p. 219.)