2014-00156358-CU-EI

City of Sacramento vs. State of California PERS

Nature of Proceeding: Motion for Order for Prejudgment Possession

Filed By: Skinner, David W.

Plaintiff City of Sacramento’s (“City”) Motion for Order for Prejudgment Possession and
for Certification of Taxes is GRANTED on condition the proof of service of the
summons is filed prior to or at the hearing.

Specially appearing Defendant U.S. Bank National Association, as Trustee, successor-
in-interest to Bank of America National Association, as Trustee, successor by merger
to LaSalle Bank National Association, as Trustee, for the Certificate Holders of Bear
Stearns Commercial Mortgage Securities, Inc. Commercial Mortgage Pass-Through
Certificates, Series 2002-TOP8’s (“Trustee”) opposes the motion. Although Defendant
C-III Asset Management LLC also filed an opposition, the City has dismissed it from
the complaint.

The Court considered the Trustee’s surreply and the City’s response to the surreply.

This is an eminent domain action. The City seeks an order allowing it to obtain
prejudgment possession of the 600 K Street property (“Property”) for a sports and
events arena at which the Sacramento Kings will play (“Project”). (CCP §1255.410.)
According to the City, time is of the essence. Pursuant to a non-binding term sheet
with Sacramento Basketball Holdings (“SBH”), project completion is preliminarily set
for September 2016. (See Declaration of John Dangberg, (“Dangberg Decl.”) ¶9.) In
order to meet this preliminary project completion date, the City asserts that it must
commence demolition in May/June 2014. (Id.) Thus, it must obtain immediate
possession of the Property by April 2014. (Id. ¶ 13.) The City argues that failure to
obtain the Property by April 2014 will put the Project at significant risk, including
allowing the NBA to acquire the Sacramento Kings and relocate the team to another
City. (Id.) On January 7, 2014, the City Council adopted the Resolution of Necessity.
The Trustee appeared at the hearing and objected to the Resolution of Necessity.

The State of California Public Employee’s Retirement System (“CalPERS”) is the
owner in fee of the Property, with the exception of the building, structures, and other
improvements. The Trustee owns the building and is the successor lessee on a long
term ground lease. The building is currently unoccupied.

Pursuant to CCP § 1255.410(d)(2), if the motion is opposed by a defendant or
occupant within 30 days of service, the court may make an order for possession of the
property upon consideration of the relevant facts and any opposition, and upon
completion of a hearing on the motion, if the court finds each of the
following: (a) the plaintiff is entitled to take the property by eminent domain; (b) the
plaintiff has deposited probable compensation with the state treasury; (c) there is an
overriding need for the plaintiff to possess the property prior to the issuance of final
judgment in the case, and the plaintiff will suffer a substantial hardship if the
application for possession is denied or limited; and (d) the hardship that the plaintiff will
suffer if possession is denied or limited outweighs any hardship on the defendant or
occupant that would be caused by the granting of the order of possession.

Entitlement to Eminent Domain

The Trustee argues that the City is not entitled to eminent domain because the City
has purportedly failed to comply with the statutory pre-condemnation requirements.
Specifically, the Trustee argues that: (1) the City failed to make its Section 7267.2
Offer to the Trustee and any purported offer was improper and insufficient, (2) the
City’s Resolution of Necessity was flawed, and (3) the City failed to serve the
summons on the Trustee and failed to provide 60-days’ notice of the instant motion.

1. Gov’t Code Section 7267.2 Offer

Gov’t Code §7267.2 (“Section 7267.2”) provides “prior to adopting a resolution of
necessity pursuant to Section 1245.230 of the Code of Civil Procedure and initiating
negotiations for the acquisition of real property, the public entity shall establish an
amount that it believes to be just compensation therefor, and shall make an offer to the
owner or owners of record to acquire the property for the full amount so established,
unless the owner cannot be located with reasonable diligence.” (Gov. Code § 7267.2
(emphasis added).)

The Trustee first argues the City failed to make it an offer.

On September 5, 2013, the City sent an offer (“Offer”) to “U.S. Bank National
Association, Michael Walker, Northern California President.” The Trustee’s counsel
explains that “he is informed and believes that Mr. Walker has no connection to the
Trust.” (Declaration of George B. Speir (“Speir Decl.”), ¶ 2.)He further states that “to
my knowledge, the Trust received no direct notice from the City regarding the City’s
intent to adopt a Resolution of Necessity in connection with its efforts to acquire my
property at 600 K Street.” (Id.) Thus, according to the Trustee because the Offer was
to U.S. Bank National Association, and not to U.S. Bank National Association, as
Trustee, the offer was never served on the Trustee. The Court is not convinced that the City did not make a Section 7267.2 Offer to the
Trustee. The Trustee’s counsel’s declaration does not support the fact that no offer
was made. The Offer was mailed to the Trustee’s counsel’s at Miller Starr Regalia and
the Trustee appeared at the hearing on the Resolution of Necessity objecting to the
Offer on the same grounds. (Speir Decl., Ex. A; Trustee’s Opp’n, at 12:28-3.)

The Trustee next argues that the Offer of $4.35 million was “improper” because the
City “improperly combined” the offer for the Trustee’s property with an offer for
CalPERS’s separate property. (Trustee’s Opp’n at 9-10.) The Trustee argues that the
City’s offer of $4.35 million was for “all interests” in the properties and therefore ran
afoul of Section 7267.2. The Trustee argues that Section 7267.2 requires an offer to
be made to the owner of each parcel to be condemned, and because “the Trust does
not share ownership of its property with CalPERS or anyone else,” the City should
have made a separate offer to the Trustee. (Id.) The Trustee argues that the City had
“an obligation to make an offer to each ‘owner’,” and that the City’s offer failed to make
an offer to the Trustee “for the property that it owns, by itself, in fee simple.” (Surreply
at 4-5.) The Trustee argues that the City’s “combined offer to the Trustee and
CalPERS, for their separate ownership interests, cannot be accepted by either party,
and therefore does not comply with Government Code section 7267.2.” (Id. at 5.)

In arguing that the City’s lump-sum offer rendered the City’s offer “improper” (Trustee’s
Opp’n at 9-10), the Trustee cites to two cases, City of San Jose v. Great Oaks Water
Co. (1987) 192 Cal.App.3d 1005, 1011 and People By And Through Dept. of Public
Works v. Lynbar, Inc. (1967) 253 Cal.App.2d 870, 875. While these authorities confirm
that each owner is entitled to “just compensation,” they do not state that an “offer”
made pursuant to Government Code § 7267.2 is rendered “improper” if it offers one
lump-sum amount for an entire property to several different owners.

The Trustee also cites Code of Civil Procedure § 1260.220(a), which governs
“Procedures Relating to Determination of Compensation” and provides that the value
of each property interest must be “separately assessed and compensation awarded
therefore.” (Trustee’s Opp’n at 9-10.) Like the cases of City of San Jose and Lynbar,
however, Code of Civil Procedure § 1260.220(a) requires each property interest to be
separately valued in determining the amounts of compensation to ultimately be paid to
each owner of taken property; it does not address whether or when an offer will be
proper under Section 7267.2.

Here, the Offer complied with the plain text of Section 7267.2. It included “an offer” to
the “owners of record” for what the City believed to be the “full amount” of “just
compensation” for the “real property” to be acquired. (Gov. Code § 7267.2(a)(1).)
While the City’s lump-sum offer expressly did not separately value each distinct
interest in the property, the Trustee has not shown that this renders the offer
“improper” under Section 7267.2. Likewise, while the Offer described the lump-sum
offer as being “based upon the ‘undivided fee rule,’” the Trustee has not shown that
the City’s reference to this “rule” renders the offer improper under Section 7267.2, or
that such reference means that the property owners’ “just compensation” will ultimately
be calculated pursuant to such a rule. The Offer also included a written summary of
how the City calculated its lump sum offer (i.e., by valuing each of the various property
interests at issue) in compliance with Section 7267.2(b), and invited the owners to
continue the “negotiation process” regarding the purchase of the property. The
Trustee has not shown that the City’s “offer fails to comply with Section 7267.2.” Lastly, to the extent the Trustee objects to the Offer and valuation, because the matter
will proceed to trial, the issue of just compensation may be adjudicated at that time.

2. Resolution of Necessity

CCP §1245.230 provides that a Resolution of Necessity must contain the following:

(a) A general statement of the public use for which the property is to be taken and a
reference to the statute that authorizes the public entity to acquire the property by
eminent domain.

(b) A description of the general location and extent of the property to be taken,
with sufficient detail for reasonable identification.

(c) A declaration that the governing body of the public entity has found and determined
each of the following:

(1) The public interest and necessity require the proposed project.

(2) The proposed project is planned or located in the manner that will be most
compatible with the greatest public good and the least private injury.

(3) The property described in the resolution is necessary for the proposed
project.

(4) That either the offer required by Section 7267.2 of the Government
Code has been made to the owner or owners of record, or the offer has not been
made because the owner cannot be located with reasonable diligence.

(CCP §1245.230 [emphasis added].)

“Except as otherwise provided by statute, a resolution of necessity adopted by the
governing body of the public entity pursuant to this article conclusively establishes the
matters referred to in Section 1240.030.” (§ 1245.250, subd. (a), italics added.) But “[a]
resolution of necessity does not have the effect prescribed in Section 1245.250 to the
extent that its adoption or contents were influenced or affected by gross abuse of
discretion by the governing body.” (§ 1245.255, subd.(b).)” ( Council of San Benito
County Governments v. Hollister Inn, Inc. (2012) 209 Cal. App. 4th 473, 485 [emphasis
added.])

“A gross abuse of discretion may be established by showing that adoption of a
resolution of necessity by the governing board of a public entity was arbitrary,
capricious, or entirely lacking in evidentiary support, the governing body failed to follow
the mandated procedure, or the governing body was irrevocably committed to taking
the property regardless of the evidence presented at the resolution of necessity
hearing.” (Id.)

The property owner asserting objections to the agency’s right to take has the burden of
establishing, by substantial evidence, that the resolution of necessity was adopted in
an invalid manner, and because of a gross abuse of discretion is not entitled to its
ordinary conclusive effect; if it does so, then the burden of proving the elements for a particular taking must rest on the agency to do so by the preponderance of the
evidence. (Redevelopment Agency v. Norm’s Slauson (1985) 173 Cal. App. 3rd 1121,
1127-28.)

The Trustee first argues that the Resolution of Necessity (“RON”) was flawed because
the City did not make a Section 7267.2 Offer to the Trustee. The Court disagrees. As
noted above, the Court is not convinced that the City did not make a Section 7267.2
Offer on the Trustee.

The Trustee further argues that the RON was flawed because it did not identify or seek
to take the building or any property of the Trustee’s because it only identifies CalPERS
as the owner. Moreover, although the RON authorizes the City to take “the real
property more particularly described in Exhibit A” and Exhibit B to the RON, the legal
description specifically excludes “the building, structures, and other improvements
located thereon.” The Complaint also incorporates the same Exhibit A and Exhibit B.
Thus, according to the Trustee, the City is only seeking to take CalPERS’ interest in
the land.

The Court disagrees with the Trustee. CCP §1245.230 does not require that the RON
identify all the owners of the property. Rather, it requires a declaration by the City
Council that is has found and determined “that either the offer required by Section
7267.2 of the Government Code has been made to the owner or owners of record, or
the offer has not been made because the owner cannot be located with reasonable
diligence.” (CCP §1245.230(c)(4).) Here, the RON includes such a finding. (Speir
Decl. Ex. A.) Additionally, the RON states that the City seeks to acquire “fee simple
title in the property located at 600 K. Street, Sacramento, California, as more
particularly described in Exhibit ‘A’ and Exhibit ‘B’.” (Id.) This is sufficient to satisfy the
requirements of CCP §1245.230(b).

The Court also disagrees with the Trustee that the City is only seeking to take
CalPERS’ interest in the land, and not the Trustee’s building or structures. Here, the
Staff Report accompanying the RON states that “the property interests to be acquired
include fee simple title in and to the subject property at 600 K Street Sacramento,
California. . . . the City’s proposed acquisition of the property will include fee title in and
to the property, including any and all leases, improvements or other encumbrances on
the property.” The Complaint also states that “the real property or interests in real
property which CITY is authorized to acquire are identified as fee interests in and to
property located at 600 K Street in the city of Sacramento and County of Sacramento,
State of California, together with all improvements situated thereon and together with
all rights appurtenant thereto.” The Trustee is also fully aware of and has fought the
City’s attempt to take the building and structures.

Moreover, such technical issues may be grounds for a demurrer or to challenge the
valuation of the Property, but do not affect the standard for a Resolution of Necessity.

Given the above, the Trustee has failed to satisfy its burden of establishing, by
substantial evidence, that the City Council’s adoption of the RON “was arbitrary,
capricious, or entirely lacking in evidentiary support, the governing body failed to follow
the mandated procedure, or the governing body was irrevocably committed to taking
the property regardless of the evidence presented at the resolution of necessity
hearing.” (Council of San Benito County Governments, supra, 209 Cal. App. 4th at
485.) 3. Summons and Notice of Motion

The Court has directed the City to re-serve the Trustee with a code-compliant
summons. Moreover, given that the Trustee has opposed the instant motion on the
merits, the Trustee has waived any defects or irregularities in the notice of motion.
“This rule applies even when no notice was given at all.” (Reedy v. Bussell (2007) 148
Cal.App.4th 1272, 1288 [internal citations and quotations omitted].) Additionally, the
Trustee has not identified any prejudice based on improper notice. (Id.) Neither will
failure to give notice deprive the Trustee of its rights to procedural due process
because the Trustee has an opportunity to be heard, and is opposing, the City’s
motion. (See Israniv. Superior Court (2001) 88 Cal.App.4th 621, 633.)

Given all of the above, the Court finds that the City is entitled to take the property by
eminent domain.

Deposit of Probable Compensation

The City has deposited $4,350,000, the amount determined by the appraiser as the
fair market value of the Property with the State Treasury Condemnation Deposits
Fund.

Overriding Need for Pre-Judgment Possession

There is an overriding need for the City to possess the property prior to the issuance of
final judgment in the case, and the City will suffer a substantial hardship if the
application for possession is denied or limited. The Trustee does not dispute the City’s
overriding need. Nor is it disputed that, if the construction deadlines are not met, the
Project will be placed in significant risk, including allowing the NBA to acquire the
Sacramento Kings and relocate the team to another City.

Balancing of the Harms

The hardship that the City will suffer if possession is denied or limited outweighs any
hardship on the Trustee would be caused by the granting of the order of
possession. The Property is currently unoccupied. Therefore, there is no substantial
hardship to the condemnee. Additionally, the Trustee’s opposition fails to specify any
hardship that it will suffer.

Certification of Taxes

The request for order for certification of taxes (CCP §1260.250) is GRANTED.

The Court will sign the orders submitted.