Kleptocracy!

A few years ago the Wall Street Journal aptly characterized current state of eminent domain law as a “kleptocratic” process. That it is. All those who work in this field of law know that in the hands of judges the constitutionally promised “just compensation” can be a cruel joke. By definition, it excludes compensation for a variety of incidental economic losses suffered by property owners whose land is condemned, notably but not exclusively for businesses which in most cases can be destroyed without their owners receiving a nickel’s worth of compensation. Even the vaunted “fair market value” that the US Supreme Court has adopted as the standard of “just compensation” fails to compensate the condemnee-owners by definition. As the Court conceded: “just” compensation is not just but harsh, and that “In giving content to the just compensation requirement of the Fifth Amendment, this Court has sought to put the owner of condemned property ‘in as good a position pecuniarily as if his property had not been taken.'” Gee, that sounds pretty good, doesn’t it? But don’t get your hopes up; it all comes apart in the next sentence where the Court drops the other shoe and delivers its “however.” “However, this principle of indemnity has not been given its full and literal force.” United States v. 564.54 Acres, 441 U.S. 506, 510-511 (1979). Why not? The Court didn’t say. In other words, says the Court, you get indemnity for your condemnation-caused losses, except that you don’t. All you get is the supposedly “fair” market value. But do you? Not really.

Beginning in the 1960s,  studies made of condemnation compensation practices have concluded that the condemnee-owners were actually undercompensated (“undercompensated” is a two-bit word for “cheated”). In a great many cases the government offers that are made are lowballs, often below the government’s own appraisal figures. How do we know it’s so? Because condemnation lawyers by and large charge their clients contingent fees with the contingency calculated only on the overage, not on the entire recovery like tort lawyers do. In other words, the owners don’t pay unless their lawyers demonstrate in court to a judge’s or jury’s satisfaction that the government’s valuation is too low. So if the government appraisals were fair or generous (as condemnor advocates like to say), those condemnation lawyers would starve to death. But they don’t. They do right well. How do they do it? Take it from us, they are not magicians able to bamboozle the judge or jury in the great majority of cases. Remember that jurors are taxpayers themselves. It follows that the typical government appraisal is deficient and its deficiencies can be demonsrtrated in court. That perception may strike you as conjecture, so we need to ask: are there any hard data to substantiate it. Actually, there are.

It began with the congressional hearings back in the 1960s, in which it became obvious that government agencies were shortchanging American property owners on a large scale. Government acquisition personnel were taking advantage of the fact that most owners lacked the funds and the sophistication to  hire appraisers and specialized lawyers who understand eminent domain’s weird legal and appraisal rules, and know how to try those cases. It was routine then that the government offered the owners whose properties were in the path of public projects less than its own appraisers showed to be just compensation. This forced the owners either to accept the inadequate offers or to hire lawyers and appraisers just to get the compensation to which even the condemnor privately conceded they were entitled, thus losing even when they won because from their award the owners had to deduct the cost of litigation, thus never obtaining the full amount of the court award. And in eminent domain you don’t get general damages that you can use to pay your lawyers and experts and still keep your hard-core compensatory damages. Also, in eminent domain there is no collateral source rule which enables tort plaintiffs to collect more than once. 

Responding to the manifest need to reform the law, the California Law Revision Commission was directed by the legislature to conduct a study of eminent domain law with the aim of protecting the interest of property owners. It found that there was widespread dissatisfaction with the state of eminent domain law. Its 1976 recommendations resulted in the enactment of the Eminent Domain Law (Cal.Code of Civil Procedure, Sec. 1230.010 et seq.) that corrected some of the worst injustices in California eminent domain law, but fell short of eliminating the undercompensation practices.

In 1967, two prestigious academics wrote an article in which they took a look at condemnation practices in Nassau County, New York. They found that the facts were every bit as bad and at times worse than the evidence revealed in those congressional hearings.  Property owners were routinely being offered “compensation” that was less than the condemnor’s own appraisals. Curtis J. Berger and Patrick J. Rohan, The Nassau County Study: An Empirical Look Into the Practices of Condemnation, 67 Columbia Law Review 430 (1967).

There followed a number of other academic writings on the subject of “just” compensation, all agreeing that under what passes for eminent domain law, condemnees are routinely undercompensated. But hard data like Berger’s and Rohan’s have been hard to come by. Nonetheless, some investigative newspaper reporters looked from time to time into the realities of compensation in eminent domain and reached the same conclusions.

A 1999 study by the Salt Lake Tribune indicated that of the Utah property owners who rejected condemnor offers and insisted on valuation trials to establish their compensation, 80% recovered more in court than the condemnor’s offers, with the average increase averaging 40% over those offers. Ray Rivera, UDOT: Fair Deals or Land Grabs? Salt Lake Tribune, Oct. 24, 1999, at p. A1, Ray Rivera and Dan Harrie, UDOT Appraisals Lose in Court, Salt Lake Tribune, Oct. 24, 1999, at p. 1A.

Then there was the Minneapolis study by Dan Browning, MnDOT’s Tactics Squeeze Landowners, Minneapolis Star Tribune, Sep. 21, 2003, at page 1A. “The Star Tribune analyzed  MnDOT’s computer records showing  more than 1,200 cases since the late 1980s in which disagreements over land value were decided by court- appointed commissions. In two-thirds of those cases, the commission determined that property owners deserved at least 20% more money than MnDOT first offered. In a third of the cases, the award was at least double [MnDOT’s offer].” * * * “When Minnesota property owners refuse MnDOT’s purchase price, they can appeal to a commission appointed by the court to determine the value. These commissions often find MnDOT’s offers too low. Here are the results of 847 such cases decided from 1998 to 2003. MnDOT’s appraisals: $78.8 million. Amount paid or pending: $130.5 million.”

Now, yet another study has been made in Georgia by two professors of planning and business respectively, with similar results. Interestingly, these two gents are not condemnation lawyers and therefore don’t have a dog in this fight. See S. Alan Aycock, CPA, PhD, and Roy T. Black, PhD., J.D., Special Master Bias in Eminent Domain Cases (unpublished paper).  The results of their study play a familiar tune. Undercompensation of condemnees is the norm in Georgia, even though the special masters usually award more than the condemnor’s offers. This is no place to go through the entire study which you can get by contacting Roy_black@bus.emory.edu , but its bottom line is that “condemnor appraisals are consistently lower than either the property owner appraisal or the final award.” Aycock and Black found that the average condemnor appraisal was $32,722, the special master award was $51,304, and the final [judicial] award was $177,758 (over five times the condemnor’s offer). The authors concede that this study was based on a small data base and they urge additional studies using a larger data base. But even so, these results are consistent with the results of earlier studies mentioned above. As those dead old Englishmen used to say, res ipsa loquitur — they speak for themselves.

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