Property Rights Foundation of America®

Speech from Proceedings of the Fourth Annual New York Conference
on Private Property Rights
(1999)

Santa Cruz Island—Just Compensation from the National Park Service
Roger M. Sullivan
Senior Partner, Sullivan, Workman & Dee, LLP, Los Angeles, California

Thank you very much. I guess if there is a theme to my talk it would be, what can we do to put some teeth into the Fair Acquisition Policies Act, sometimes known as the Uniform Relocation Act, which is supposed to govern our governmental agencies when they deal with private property owners for their acquisitions. It was enacted way back in 1970 and has been enacted in all of the states whenever they use federal funds for any kind of acquisitions. I think you will see what I am talking about when I get further into my presentation.

Coming from Southern California, the land of movieland and everything, I guess I shouldn't be surprised at anything. I found this situation of 6,000 acres which is on the east end of Santa Cruz Island and which was owned by my clients, the Gherini Family, ever since 1869 when their great grandfather first acquired the entire island. I don't know if any of you have ever seen a feature that has come to my mind. I think it was called "The Rock" with Sean Connery and Nicholas Cage in it, when some renegade military type wanted to take over Alcatraz, and he got into a helicopter and they are going over there and they took over the island.

Those are movie type things, but on January 15, 1997, just a little more than two years ago in the dark of nightfall, a black hawk helicopter took off from Fort Laguna Navy Base with 20 combat types inside it with automatic weapons, full body armor, ski masks over their faces, and under cover of darkness took off across the 18 miles from Fort Laguna over to this Gherini Ranch property on the east end of Santa Cruz Island, landed with ten men at one of the harbors, Scorpion Harbor, dropped another ten men over here at Smugglers Cove, which were the only two places where people were staying at that occasion and arrested everybody on the island and took them under control. They were National Park Service agents assisted by county sheriffs. This is February of 1997. There was one 15-year-old girl that they took out of her bunk, had her lay on the floor, handcuffed her. These 40 people were over here visiting for the weekend on bed and breakfast, hikers, nature lovers just wanting to walk around; a few of them were bow hunters hunting for the sheep that were there on the island which had been there for many, many years. At the end of this escapade they arrested three employees of the concessionaire who ran this island's adventure concession. One of them was arrested for conducting tours without a license, a misdemeanor; another was arrested for operating a stove without a proper license, another misdemeanor; and a third man was arrested for allegedly taking Native American remains out of a site and violating a Native American grave removal fact, which was a felony. Now how did this all come to pass?

This property, the Santa Cruz Island is the largest of the channel islands. As I said, it is located about 18 miles off the California coast, and if you have ever driven up Highway 1 from Los Angeles towards Santa Barbara when you go through the Ventura area look off to your left and you will see this beautiful island off there in the distance. The property, as I say, was first bought by the Gherini great grandfather back in 1869. It is a beautiful piece of property. My clients were four of them, and we have to go back almost to 1960. This is one of those career cases that I have been working on off and on for over 30 years. When I was representing, or assisting, one of the owners, two of them were attorneys, two men and their two sisters, way back in the 1960s, I heard about the island. At that time there was some talk about turning this into a park. See, whenever you have a property sitting around, somebody wants to make a park out of it. Another topic that I am sure a lot of people could talk about is whether they really need to turn these things into parks, but I won't get into that at this time.

I suggested to the owners at that time that they ought to have a master plan developed for the property which would show its highest and best uses, because in the condemnation field it is necessary to appraise according to the highest and best use and that involves what the zoning of the property is. They took my advice and had a world famous architect come up with a master plan for the 6,000 acre ranch. He came up with a beautiful plan that would allow development that would be limited to maybe only 5 percent of the 6,000 acres at those two harbors that I told you about and would allow for a maximum density of about 3,000 units. The property is technically part of Santa Barbara County, and that is what one of the two owners lived in. He got Santa Barbara County to adopt this as the zoning of the property according to this particular plan.

Incidentally, the Park Service was even at that time opposed to this concept, but the County adopted the plan at that particular time. Now, along in 1970 the Coastal Act was passed in California and that is like some of the acts that I have heard about today that you have here. The Coastal Act provided that this was a master organization governing all the zoning in the state of California along the coastline and so everybody, every county along the coast, had to come up with their own coastal plan that conformed with the general coastal policies. Well, the result of that is that the Coastal Commission said you've got to downzone this property and they wanted it downzoned to about 19 or 20 units instead of the 3,000 units that applied. The County of Santa Barbara said, that is a little too much, we think you could downzone it to maybe 240 units. As a result, this ended up that they hadn't agreed upon what the zoning was, but it wasn't a happy situation to be in at that particular time.

But the people in Congress and the Sierra Club and others who wanted to see the whole channel island made into a park prevailed, and in 1980 under President Carter they declared the entire Channel Islands, which are five major islands out there, all part of the park. They only appropriated something like $30 million at that particular time, and they provided that they had to acquire one of the other islands which was further out which had a more influential lobbyist working for them. They said you've got to acquire that island first, and they used all the $30 million to acquire that Santa Rosa Island at that particular time.

So that put my clients in a situation where they said, your property is in the park, but we don't have any money to acquire you. You will just have to sit there and wait. The result of that, of course, was they couldn't make any beneficial use of the property. They couldn't sell it, they couldn't do anything else, because there was the announcement this was part of a National Park. They went on in this fashion for about six or seven years.

Finally, the government had an appraisal made under this Uniform Act that I told you about, which they call the Muskie Bill. It provides that a governmental agency must make its offer based upon its highest approved appraisal. Now, the highest approved appraisal they came up with was some $16 million at that time in 1988, but the Park Service chose not to follow this Uniform Act. They said, we won't make you an offer. You tell us what you will agree to sell for, and we will go to Congress and see if we can get the money for that. That is quite a different situation.

Well, it so turns out that my clients, three of them were widowers and one of them was married at that particular time. Now, if you are a widower, under the tax laws that means that if you die and you own property that is valued at $4 million, the IRS will come after you for estate taxes and the estate taxes are approximately 50 percent of the value of your property. So it happened in 1988 that one of the four died and that left his heirs in kind of a quandary. Based upon the government's appraisal, they were going to have to pay $2 million in estate taxes. They didn't have the money because the government hadn't given them money or done what they could for it, so they pleaded with the government to come out—and will you please acquire the property. We have got to have it at this particular time. The Park Service said, well, we will do what we can. We have a policy of not acquiring undivided interests but acquire everything at one particular time and Congress hasn't appropriated enough money to pay for all of this. So it ended up that they negotiated and negotiated and, after two years of negotiations, they finally got the Park Service to give them $3.8 million, which was less than the last approved appraisal.

The two other sisters, who were both widowed, were in the same situation and they didn't want their heirs to be faced with this problem, so in 1992 they also agreed to sell for a little over $4 million and they had to take a discount before Congress came up with the money for them.

But the last of the four was an attorney in Oxnard who was the other brother, who was married and didn't have the same concerns. Although he wasn't in very good physical shape, at that time was in his mid-seventies to late seventies, and was on dialysis, had vision problems, and some other things, he was a real fighter and he said this isn't right. The $16 million appraisal is a flawed appraisal, he believed, and I am not going to accept it. Around 1984 they had stopped their sheep ranching operation on the property because it wasn't profitable anymore, but there were about 5,000 or 6,000 sheep running around the property. So they entered into an arrangement with the concessionaire who ran a hunting club, and he started a bow hunting club arrangement where bow hunters could come over and hunt these sheep. That would help them to cull the herds, and he also operated a bed and breakfast operation and a kayaking operation and mountain biking and all these other things, and this turned out to be a very fine operation for the concessionaire. It only threw off about $100,000 a year in income off of the property, and, since the Park Service owned three quarters of it, they got $75,000 and my remaining client only got $25,000 after all. But at least it was some income coming in.

Incidentally, he had tried to get a permit to put a communication site on the property because these peaks. There is a mountain range right here that separates the 6,000 acres from the remaining 60,000 acres, and it turned out that two of these peaks had an unimpeded view of the southern California coastline which makes them extremely valuable as communication sites. But the Park Service said, no, you can't make any use of that and we aren't going to allow you to do that. And you wanted to have some aquaculture operations carried on because there is quite a demand for aquaculture where you grow abalone under, you know, these conditions and things of this nature, and they wouldn't allow him to make any use of that. But he was able to get this concession, Island Adventures concession, in operation, so at least it was getting some income from the property.

Anyway, he was going along under these circumstances into the 'nineties. Finally, around 1995 or 1996 the Park Service people were getting annoyed at the fact that Gherini was going along and apparently not going to give in. The congressman who is in charge of appropriations wasn't inclined to give any money for these Channel Islands because he was from the Midwest and he would rather fund other park activities elsewhere in the country. So they were sitting there in kind of a stalled situation, but there was a congressperson from the coast who was contacted by some environmental groups who said that they ought to do something about this because this Island Adventures operation is going on, and we don't think they are, you know, taking proper care of the island and this and that, and we should have a park out there. This was because they weren't able to open up the park as long as my client was still in possession of the property.

Finally, they came up with an appraisal for him in 1995 or 1996 and, even though they had appraised it at $16 million way back in 1989 and 1990, this time the appraisal worked out to about $8 million. He said, well, I am sure not going to take that. You just go take a walk. He said, if you want to go to court, we will be happy to go to court and you put your deposit into court as you are supposed to do under the federal condemnation proceedings, you know, and we will have a quick trial and have it all determined because these are some of the things that that Relocation Act requires you to do. You make an offer and if it is not accepted, you don't hang the owner out there to dry. You are supposed to go and act expeditiously in all of this.

In any event, they saw that my client was there and was in kind of bad health and so they went ahead and got what they called a legislative taking. A legislative taking only normally takes place when maybe they are going to bulldoze some redwood trees or something terrible is going on, and they've got to move quickly to solve it. Then they get this legislative taking. Under a legislative taking they don't deposit any money in the court for you, they just provide that title is taken, possession is taken, and you wait till we get good and ready to go to court and take your property. That is not a very good situation. Anyway, that is what they decided to do. So they passed this legislation about November 1996 and they said that in 90 days, February 1997, title is going to pass, possession is going to pass, and you've got to get everything off by that particular time.

So now you had a situation where the park rangers were already on the island. They knew everything that was going on on the island. There was no urgency, nothing bad was happening.

What they did was they conducted a sting operation. They had a couple of park rangers go out to the concessionaire and they said to one of the young people operating it, "Can you find us any Indian remains?" This poor young man said, "Oh sure, there are Indian remains all over the place." So they said, "Show us where they are." So this poor young guy came out here and he found a place where there were Indian remains. Remember, the Chumash Indians had been there had been there for 7,000 years. So you can imagine how many burial sites there were on the property and, since this was the closest place to the mainland, these are all over the place. So this poor young guy found them and showed them where a skull was and picked it up and things of that nature. After seeing that and getting the evidence that way, that was what led to this raid and that was the poor young man that they arrested and charged with a felony because of what had happened.

At the time they also appropriated or expropriated my client's things. They had some display cases in these houses, and if I can make this travel mike work I will put in another set of slides and show you one of the old ranch houses. There were two ranch houses, one at each location, one in each harbor, I should say. So down at the bottom of the screen you can see the ranch house which is down here at Smugglers. It is a beautiful building. I have another one here that shows it even a little better. In these ranch houses they had display cases which showed some of the Indian mementos, you know, the arrow heads, the various tools that they used to wash and do their cooking and things of this nature. It is a beautiful ranch house, two story, they had been built about 1890, and they had these Indian remains located in there. So they went in and confiscated all these Indian remains as evidence, I suppose, and they still have those.

So in February 1997 they took possession, as I have indicated, and then they had another appraisal made. Now they hired as their appraiser a man who was the former president of the American Institute of Real Estate Appraisers who was raised in Arizona but formerly he had been in Chicago, hadn't done an appraisal on the West Coast in at least 10 years, and even before that he had only done one appraisal when he had been in charge of a major appraisal out there involving about a hundred appraisers who were doing a major job. They came up with an offer, or rather with an appraisal, finally, of $16 million; so they got up to the same place that they had been about ten years earlier. And again, of course, this was not acceptable to my client.

We have retained two appraisers, one appraiser who I thought is one of the best appraisers in California based both in San Francisco and Los Angeles, who had extensive experience appraising coastal properties up and down the state, and also an appraiser from Seattle, Washington, who is an expert in appraising conservation properties. This was a new aspect here because we knew we had a major problem as far as the zoning was concerned, and another approach, of course, you can take in valuing properties is look at its value to conservation trusts because the market for property for conservation trusts is growing every day. This is another angle for people whose property has been down-zoned to consider, because property such as this, for example, that had all the biological resources. It had 60 sea caves, for example, along the north side. It had all these zoological, biological, cultural Native American features making it extremely valuable to conservation trusts. The growth of conservation trusts has been tremendous at least in our part of the country in recent years. So we had two appraisers looking at it from that particular standpoint. We retained biologists and Native American experts and things of that particular nature.

Their appraiser, the chief appraiser, said, I want to come and talk to you and find out what your thinking is about value. We knew that he wasn't there just to try to help us out; so when he met with us we told him that we felt the highest and best use was to use it for this plan which had been approved 20 years earlier with 3,000 density and so and so forth. He kind of went off on that approach and was kind of surprised when at the trial we made our exchange and they finally learned for the first time that we had appraised it for two alternate approaches. One was an approach as a trophy property which one of the appraisers did, and the other approach was for conservation and resources and things of that nature.

In any event, they brought in two attorneys from Washington to try it. At the time of trial this out-of-town appraiser said there is no comparable sales even though he listed 26 properties, and it turned out that he didn't call them "comparable sales," he called them "comparable transactions"; so there was no way you could tell how he got to his price based upon the values of these particular transactions. The truth was that all he had done was take the $4 million that they had had back in 1990 and added about 5 percent on top of that to arrive at what his opinion was.

But, in any event, the trial, which I could tell you about but it would take too much time that I don't have allotted to me at this particular time, it worked out pretty well. He didn't understand what an agricultural preserve was in California. He thought you could just get out of an agricultural preserve by paying some money, and of course that is not the case. You value the land less than some ranches in Riverside County which had kangaroo preserves on them, which means you can't do a thing with them. So they were selling for about $5,000 an acre and he was down to about $2,000 an acre. In any event, after only being out for something like four or five hours, the jury came in at our figure which is like $8,000 an acre and it worked out to some $50 million for the property as a whole, and, of course, my client got the one fourth of that which worked out to the $12.7 million. Then we threatened to go in for litigation expenses which would have given us another million or so. So the government said, well, we will waive an appeal if you will waive your litigation expenses, and we agree to do that.

So now we are going to get $14.3 million as of the first week of June and the whole thing has finally ended up fairly well, but it was a case that had a lot of different aspects to it and it was very, very exciting case from my perspective. I probably left out a lot of the things that you are interested in, but I appreciate having the opportunity to talk to you about it. Thank you.

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