The California Supreme Court's relatively short unanimous opinion yesterday in City of Oroville v. Superior Court, No. S243247 (Aug. 15, 2019) may have a bigger impact outside of that case than within in.
While that is undoubtedly true in many decisions by a precedential court of last resort, we highlight that here because inverse condemnation is a trending topic in California right now due to the multiple litigations spawned by a series of wildfires, and the City of Oroville case is all about the details of California's somewhat unique inverse condemnation doctrine.
Short story is that a dentist's office flooded with you-know-what when the municipal sewer backed up. Dentists said the City didn't maintain the sewer (sewer systems are supposed to take crap away in a one-way direction, not return it into habitable spaces). The City for its part argued that if the dentists had only installed the "legally-required backwater valve" none of this would have happened (the valves are required as part of the City's plumbing code).
The dentists raised an inverse condemnation claim. The Court of Appeal agreed, holding the City liable. But the California Supreme Court agreed to review the decision because "[t]he appellate court reached this decision without addressing a fundamental question: whether the inherent risks associated with the sewer system -- as deliberately designed, constructed, or maintained -- were the substantial cause of the damage to the private property." Slip op. at 1.
And here's the Supreme Court's bottom line:
Public entities are not strictly or otherwise automatically liable for any conceivable damage bearing some kind of connection, however remote, to a public improvement. To succeed on an inverse condemnation action, a plaintiff must ordinarily show — assuming the public entity made reasonable assumptions about the public improvement in question –– that the damage to private property was substantially caused by inherent risks associated with the design, construction, or maintenance of the public improvement.
Slip op. at 1-2.
We've heard California's inverse condemnation jurisprudence described as a "strict liability" scheme. Governor Newsom, for example, said, "[w]e are committed to continuing the exploration of the impact of strict liability on the costs to ratepayers, on wildfire victims and on the solvency of our utilities. If the trend of massive, catastrophic wildfires persists, we may need to pursue additional changes." But this decision should make it clear that this is a misnomer.
Because the installation of the backwater valve "would have prevented or drastically mitigated the risk of damage" and was "legally required," the dentists could not make out a claim for inverse condemnation. The court awarded the City judgment as a matter of law (not merely vacating the judgment and sending it back for more).
Read the opinion. It isn't that long (24 pages) and see if you don't think there's a "torty" flavor to it. The court talks of "primary causation," "inherent risk," and the like. (The trial court concluded that the backup was primarily caused by root intrusion, but that a "significant secondary cause of the damage" was the lack of a backwater valve which had, unbeknownst to the dentists, not been installed in their building when constructed before they bought it.) See also slip op. at 9 ("To resolve inverse condemnation claims and the causal questions they raise, courts have garnered insights from tort and property law doctrines relevant to analogous disputes between private parties.").
The Supreme Court rejected the court of appeal's analysis that focused on the City's failure to prove that "other forces alone produced the injury." Slip op. at 6. The appeals court likened the City's argument to contributory negligence in tort law (to us it reminded of the "last clear chance" doctrine). Inverse condemnation isn't really a cause of action, "but instead a remedy for an already-existing cause of action." Slip op. at 9. The public has a responsibility to justly compensate owners "for those damages to private property resulting from the construction of a public improvement." Id. ("Common law doctrines may offer a useful analogy, but the roots of inverse condemnation liability lie in constitutional terrain rather than the common law.").
In some cases, the court concluded, the applicability of the remedy is easy to see: construction of a water system, flood control levee, or street construction, for example. But other situations like here are not as clear (at least according to the court). In those situations, the court sought to balance between the Armstrong principle (the cost of public benefits should not be focused on particular owners, but spread across the public), and the notion that public entities would be "discouraged from providing essential public works projects" if they are held liable to pay when the property owner could have prevented the damage by complying with the law (installing a backwater valve). Slip op. at 11.
We encourage you to read at least from page 10 onward. This isn't tort even though it might look a lot like it. Slip op. at 12 ("To mitigate confusion, we restated this test to eschew the term 'proximate.' What we used instead was the term '''substantial' causation.''). To establish that causation, the owner must prove a "robust" nexus between the inherent risks of the public improvement and the resultant damage. Yes, the owner need not prove the improvement was the sole cause of the damage and was merely a factor, but it has to be significant and a risk inherent in the design of the improvement, and not the way it was maintained (that aspect, presumably, could be considered in tort). The court concluded:
Our conclusion follows from what we explained in Customer Co. and Holtz: a court assessing inverse condemnation liability must find more than just a causal connection between the public improvement and the damage to private property. What we hold is that the damage to private property must be substantially caused by an inherent risk presented by the deliberate design, construction, or maintenance of the public improvement. This approach aligns with how we have previously analyzed inverse condemnation liability cases. It also protects private property owners by allocating the financial losses resulting from the public improvement across the community and provides public entities with an incentive to internalize the reasonable risks of their public improvements.
Slip op. at 14.
The remainder of the opinion is about how to apply these standards. The damage must be the "predominant" result of the improvement. "Inescapable or unavoidable consequence," as the court put it. And part of that calculus is the plaintiff's contribution to the damage. Compliance with the plumbing code is one of those things. "To prevail on its claim of inverse condemnation liability, then, WGS must ... demonstrate that the inherent risks posed by the sewer system as deliberately designed, constructed, or maintained manifested and were a substantial cause of its property damage." Slip op. at 18-19. Is not root intrusion an inherent risk of a sewer system? Yes, but that doesn't mean that mitigation isn't part of the equation. "Contrary to WGS's contention, Belair did not announce a rule triggering liability in all inverse condemnation cases based solely on the existence of any conceivable causal connection between a public improvement and private property damage." Slip op. at 19.
In short, inverse condemnation isn't "strict liability."
Instead, a court reviewing an inverse condemnation claim arising from sewage overflow must consider whether the damages to private property were the direct and necessary effect of the inherent risks posed by the public improvement as deliberately designed, constructed, or maintained. And in a case like this, a reviewing court must also assess whether the damages were the result of a risk created not by the public improvement, but by the acts of the private property owner. A causal connection between the public improvement and the property damage alone is insufficient to sustain a finding of inverse condemnation liability.
Slip op. at 20-21.
How this standard plays out in the wildfire cases we shall be watching. But we guarantee you that every lawyer involved in those cases is reading this opinion very carefully right now.
City of Oroville v. Superior Court, No. S243247 (Cal. Aug. 15, 2019)
