—Do you have a pipeline running through your property?
—What about a power line? Or water line?
—Maybe a neighboring business is encroaching your property line? Or its customers are parking on your property?
These and many other forms of trespass might also fall under California’s restitutionary statute Civil Code § 3334, which disgorges trespassers any unjust enrichment they enjoyed by trespassing on your property.
The statute was a response to complaints of trespassers dumping toxic waste in the desert.
Even when they got caught, the penalty was nominal, because penalties in civil litigation are based on the injury to the property, which in these cases were vacant, nonproductive parcels. As the California Senate Judiciary Committee observed, “trespassers find it to their advantage to intentionally use another’s land, reap large benefits for that act, and then pay a relatively small amount of damages for the trespass.”
In 1992, the California legislature responded with AB 2663, sponsored by then-assemblyman Richard Polanco, the bill that later passed into law as Civil Code section 3334. The legislature cited the maxim that “No one can take advantage of his own wrong,” but noted that the policy under the laws at the time gave trespassers “a definite economic incentive to continue” trespassing. To fix this, the legislature decided that “the law should be clear that the damages recoverable in such cases is the economic benefit to the trespasser.” This was necessary “to eliminate the economic incentive to commit trespass when the benefits to the trespasser would outweigh his liability for damages.”
Disgorgement: Something New, Something Used, Something Borrowed
The idea is not so much new as remembered. Disgorgement used to be widely recognized in the law.
The “actual value of that which has been so used”: Bourdieu v. Seaboard Oil Corp. (1941)
In Bourdieu v. Seaboard Oil Corp. (1941) 48 Cal.App.2d 429, the California Court of Appeal held that a plaintiff may recover the “actual value of that which has been so used and acquired by the defendant.” A popular California legal treatise at least as of 1988 cited to Bourdieu for the proposition that “if the defendant obtained a greater return than that [rental value of the property], the plaintiff may be permitted to recover the larger sum.”
Against “a virtually expense-free use”: Don v. Trogan Const. Co. (1960)
Likewise, Don v. Trogan Const. Co. (1960) 178 Cal.App.2d 135, also predating section 3334,chafed at the idea that a trespass victim ought to be embarrassed by the depressed relative value of his property. There, the owners intended to develop a market on their property, but found a neighbor was storing dirt on it for his own development. The trial court ruled that the unproductive owner “had lost nothing,” and thus awarded them only nominal damages based on fair rental value.
The Court of Appeal reversed. “[I]f only nominal damages are awarded, the appropriators of the use of land could gain a virtually expense free use of property for profitable purposes on the single condition that the owner did not presently intend to lease the land or to use it himself.”
The “harsh rule”: Whittaker v. Otto
In Whittaker v. Otto (1967) Cal.App.2d 666, owner sued trespassers of his mineral claim. The trespassers urged they sold the ore for less than it cost them to extract it, and thus the court should award no damages. The court observed that in such cases there is a “mild rule” that would credit the expenses of a trespass “by honest mistake,” and a “harsh rule” that affords no deduction for the costs incurred in a trespass committed willfully or in bad faith.
To decide whether the trespass was “honest” or “willful,” “something more than the trespasser’s assertion of a colorable claim” is needed, and “defendant bears the burden of proof as to his good faith.”
“Equity does not wait upon precedent”: Cassinos v. Union Oil Co. (1993)
Finally, Cassinos v. Union Oil Co. (1993) 14 Cal.App.4th 1770 was decided before the amended section 3334 went into effect. There, an oil company flooded wastewater onto plaintiff’s mineral estate, amounting to trespass since plaintiff did not consent despite defendant’s purported good-faith belief that the surface owner’s consent sufficed. Although the amount of harm was unascertainable, courts may establish damages in any way appropriate to the facts of the case, and “[e]quity does not wait upon precedent which exactly squares with the facts in controversy, but will assert itself in those situations where right and justice would be defeated but for its intervention.” The court affirmed the application of quasi-contract damages based on the amount of the oil company’s unjust enrichment, calculated by the price-per-barrel of properly disposing of the wastewater.
The disgorgement theory returns
Against that authority, the Restatement of the Law of Restitution, published by the esteemed American Law Institution, previously held disgorgment in disfavor. Suddenly in the Third Restatement, however, it is making a comeback. But California beat the Restatement authors to it with Civil Code § 3334.
Section 3334 represents a seismic shift of power from trespassers to owners. “Efficient trespass” was no longer an option, as all the trespassers efficiencies would have to be disgorged.
The legislature understood the significance. In a minority analysis, the Assembly Committee on the Judiciary acknowledged that “this kind of economic club could so further discourage and burden some business entities from operating within the state.” And Texaco, for one, strongly objected to the bill, arguing:
“Permitting recovery of the benefits of wrongful occupation could expose exploration and production activities to suits seeking recovery of the full value of oil and gas produced from a parcel of property. While Texaco normally produces oil and gas from leases where the title is good, there is always the possibility that title to a lease may fail for one reason or another. For example, the signature on a document in the chain of title may be forged or there may be matters outside of the recorded documents which affect title. If title to a lease were to fail and we were found to be wrongfully occupying property, our exposure could be very significant if we had produced substantial amounts of oil and gas before the title failure was discovered.”
Likewise, GTE (now Verizon) complained that utility companies have “[m]any thousands” of “facilities placed on, above, under, and through the private property of the public,” and that “[i]t is possible that a few of these utility facilities, through inadvertent surveying or contractor error, might have been placed slightly out of specification….”
At the request of Southern California Edison, the bill was amended to specify that section 3334 would not apply to a trespass resulting from a mistake of fact — for example, where a trespasser holds a mistaken belief that it owns the property.
The legislature obviously contemplated that oil and gas companies could be disgorged the revenues of any trespassing oil and gas. The same GTE letter went on: “In the case of an energy company, the revenue generated by power passing through a nexus or gas through offending pipelines could also form the basis for damages.”
AB 2663 was approved by the Assembly 58-4 and by the Senate 33-0.
“Benefits Obtained” Cases Under Civil Code § 3334
The paltry number of published cases since section 3334 was enacted suggests that shifting incentives had the desired effect, at least in the case of midnight dumpers. But three cases illustrate how courts have dealt with trespass claims under section 3334: Watson Land Co. v. Shell Oil Co. (2005) 130 Cal.App.4th 69; Starrh and Starrh Cotton Growers v. Aera Energy, LLC (2007) 153 Cal.App.4th 583; and Bailey v. Outdoor Media Group (2007) 155 Cal.App.4th 778.
Those cases will be discussed in subsequent posts.
Timothy M. Kowal is a civil litigator specializing in trespass, land use, and business litigation. You can contact Tim at (714) 641-1232 or firstname.lastname@example.org.
(View more articles by Tim Kowal here.)