California Supreme Court clarifies review standard for eminent domain acquisition of private utilities

By Emily Taylor, senior deputy general counsel

The California Supreme Court this week issued a ruling in a long-running eminent domain dispute involving the town of Apple Valley and a private utility. The decision may make utility condemnation actions longer and more expensive for cities, while increasing uncertainty over the outcome.

The case, Town of Apple Valley v. Apple Valley Ranchos Water, began in 2016 when the town tried to acquire a privately owned water system serving the community through eminent domain. Over three years later — and after a 67-day bench trial — the trial court ruled against the town and awarded substantial litigation expenses to the utility owner. The court of appeal reversed the decision, and the California Supreme Court agreed to review the case.

California Eminent Domain Law allows public entities to acquire property for public use. To do so, an agency must establish the three “public necessity” findings:

1. The project is required by the public interest and is a necessity.
2. The project is planned or located in the manner that maximizes the public benefit while minimizing private harm.
3. The property is necessary for the project.

When the property is already devoted to public use, the agency must meet a fourth requirement: The proposed use is a more necessary public use than the existing use.

A key question in this case was whether courts should defer to a local agency’s public necessity decision — overturning it only for a “gross abuse of discretion” — or independently review utility condemnation decisions. In this context, a gross abuse of discretion refers to a lack of substantial evidence supporting the necessity findings.

Cal Cities filed an amicus brief supporting the town, arguing that courts should give deference to a local government’s decision that acquiring utility property through eminent domain is necessary and serves the public’s interest.

The Supreme Court held that when a local public entity seeks to acquire a privately owned water, gas, or electric utility through eminent domain, its resolution of necessity creates only a rebuttable presumption that the required statutory findings are valid. If the utility owner challenges the condemnation, the trial court must conduct an independent review of the evidence to determine whether the owner has rebutted that presumption by showing that the agency has not met the statutory requirements for the taking.

The Supreme Court held the court of appeal erred by applying a gross abuse of discretion standard to the town’s decision, reversed the court’s judgment, and sent the case back to the court of appeal for further proceedings.

One unresolved issue — which fell outside the scope of the Supreme Court’s review — is whether the trial court improperly relied on post-resolution evidence to determine that the utility met its burden of proof. That important issue is subject to further consideration by the court of appeal.

Cities seeking to acquire privately owned utilities through eminent domain should consult with their city attorneys regarding the impacts of this decision.