Kleptocracy, Misrule and Waste in Wisconsin

         A while back, the Wall Street Journal characterized some of prevailing eminent domain practices as “kleptocratic.” And so they are. We are hard put to come up with an example that in our opinion, justifies that pungent characterization more appropriately than the outrageous case of City of Milwaukee Post No. 2874 VFW v. Redevelopment Authority, 768 N.W.2d 749 (Wis. 2009).  

        This elephantine, 74-page judicial opus of the Wisconsin Supreme Court (consisting of a 46-page majority opinion, 2-page concurrence by Ziegler, J., and a 26-page dissent by Prosser, Crooks and Roggensack, J.J.) is devoted to a fulsome exposition of a non-existent rule of law. The majority spills a barrel of ink in defense of the assertion that, when the U.S. Supreme Court held explicitly in Boston Chamber of Commerce v. Boston, 217 U.S. 189 (1910), per Holmes, J.,  that:

“[T]he Constitution does not require a disregard of the mode of ownership — of the state of the title. It does not require a parcel of land to be valued as an unencumbered whole when it is not held as an unencumbered whole”

it actually meant the opposite; i.e., that in valuing property in eminent domain cases, the true state of title must be disregarded and property that is owned by several people must be valued as if owned by one person. And in disregard of the further Boston holding that “the question is what has the owner lost, not what has the taker gained,” the Wisconsin Supreme Court’s majority asserted that value is to be determined by what the taker has gained (i.e., the fee simple title), not what the owner of each interest has lost, and that therefore it was all right for the trial court to disregard the existence of a valuable lease under which the VFW was able to occupy its premises for $1 per year for 99 years, and to pretend that the lease did not exist. The trial court awarded the VFW $0 — that’s right, nothing, nada, zip — for the bonus value of its lease, that ran into six figures. 

         The 10-story subject building housing the VFW was owned by the Maharishi Vedic University which evidently had more money than brains, because, though it bought it (subject to VFW’s ground floor lease), it neither occupied it nor maintained it — with predictable results. It deteriorated. Acting on demands of neighbors, the city filed a condemnation action to acquire it. The trial court found $140,000 to be the value of the Maharishi Vedic University’s interest, and $300,000 to be the bonus value of VFW’s lease. But the problem was that the city had to pay $970,000 for asbestos removal and demolition of the building, so it argued that after offsetting those costs the owners were not entitled to any net compensation. Whatever the merits of that argument may have been as far as the Maharishi folks were concerned, it obviously had nothing to do with the VFW, which as a tenant, had neither the duty nor the right to maintain the portions of its landlord’s building that it did not occupy.

          Nevertheless, the trial court invoked the so-called “undivided fee rule” under which the condemned property is first valued as if owned in fee simple by one owner, and then the lump-sum awarded for it is apportioned between parties such as landlord, tenant, easement holder, etc., as their respecive interests in the property may appear. Ordinarily, the rule is innocuous because whether valued using the undivided fee rule or the competing aggregate-of-iterests rule, the result is pretty much the same. But there are cases, such as this one, in which consideration and valuation of individual interests results in a total value that is significantly different than the one derived under the undivided fee rule. What then?

          Better reasoned cases in several states, that have confronted that problem, have held that under those circumstances, whatever the merits or lack thereof, of the undivided-fee rule, an exception must be made, lest the tenant or other owner of a partial interest in the subject property be deprived of his just compensation in whole or in part. The leading case on that point is People etc. v. Lynbar, Inc., 62 Cal.Rptr. 320 (Cal.App. 1967), explaining that under the U.S. Supreme Court’s holding in the Boston case, the court is not at liberty to disregard the true state of title and indulge in the fiction that title is other than what it actually is. To do so, held the Lynbar court, would deny the owners of partial interests in the subject property the just compensation to which they are entitled under the Constitution.

         We could spend more time analyzing the legal absurdity of the undivided-fee rule under which courts say that the whole is less than the sum of its parts (and come to think of it, we have done so — see 5 Univ. San Francisco L. Rev. 39), but there is more to this story than this outrageous “valuation.”

          The Milwaukee Journal Sentinel of October 27, 2009, has just blown the whistle on the equally outrageous non-legal aspects of this caper (Former Hotel Site Remains a Vacant Lot, by Tom Daykin). It turns out that after spending some $856,000 on acquisition (in 2001), and after blowing $970,000 on remediation (in 2003) nothing has been done with this property which, being now owned by the city, has  presumably been removed from public tax rolls, and the debt of $3.69 million that is “tied to” the idle hotel site (as the Journal Sentinel puts is), now has to be paid for by taxes diverted from  public schools and the like, while the site remains vacant, doing no one any good.  .

          Your tax money at work. 

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