Monthly Archives: September 2007

No Hobgoblins in Arizona

Ralph Waldo Emerson observed that a foolish consistency is the hobgoblin of little minds, and a recent Arizona Court of Appeal decision endorses that view. In Salt River Project etc. v. Miller Park, LLC (Ariz.App. 2007) 164 P.3d 667, the Arizona Court of Appeals had to wrestle with the problem of what to do when a property owner in a condemnation case offers testimony of value  (ranging from $3,850,689 to $ 5,474,620 as total compensation for the taking), but the condemnor contends that just compensation should be a lot less (only $270,573), and bolsters its argument by demanding that it should be permitted to impeach the owner’s evidence of value by showing that the owner’s representative  had earlier testified in a tax assessment proceeding to a much lower value of only $10,000. The trial court excluded that impeachment tetimony, and the jury awarded $4,711,528. The Arizona Court of Appeals affirmed on this point.

We understand how condemnors’ counsel can get upset about a ruling like that, and object to the inconsistency of it, but the inconsistency may be more apparent than real and there are actually good reasons for excluding tax assessment valuation  matters from condemnation trials. First, there are evidentiary reasons; the subject property is rarely, if ever, valued for tax purposes on the same date as the condemnation date of value, and that alone can be a big problem — if admitted, the owner would have  to be afforded an opportunity to show why the tax valuation figure was deficient or outdated, and that would raise collateral issues and complicate the proceedings, cofusing the jury. More important, in eminent domain, the property is valued for its highest and best use, and “fair market value” represents the highest price the owner could obtain in the open market (see Cal. Code Civ. Proc. Sec. 1263.320). This makes sense. The condemnation prevents the owner from taking his sweet time in marketing his property to receive top dollar, so  it is only fair that he be provided with the highest price he could have obtained in a free market transaction absent the condemnation. But there is no such requirement in tax valuation where the property is valued for its “cash value” in its present use, and the owner is free to interpret market uncertainties and ambiguities so as to minimize his taxes. Also, if an error is made in ad valorem valuation, it can be corrected later. But if it occurs in codemnation, it’s curtains — the property is taken, the case becomes final and the compensation cannot be adjusted later on. Finally, with all due respect to our friend, the county tax assessor, ad valorem appraisals are often of poor quality and that is the reason why they are generally not admissible into evidence in eminent domain valuation trials, not even when the owner complains that the government is offering him less than what it contends to be the property’s value in its tax assessment proceedings. So the rule cuts both ways.

This is not a universally followed approach to the problem of inconsistent valuations, but this opinion is uncommon in its extensive canvassing of authorities dealing with this problem. It’s a “good read” for eminent domain trial counsel and appraisers.

Sovereign Power of Eminent Domain May Not be Bargained Away to a Private Party

An interesting opinion has come down from the Washington Court of Appeals. The issue, as the court framed it, was  “. . . whether a public entity’s agreement to assign its rights as a condemnor to a private party under an uncompleted eminent domain proceeding constitutes an abandonment of te condemnation by the public entity.” The short answer: yes.

Seattle Monorail (SMP) filed an action to condemn a parking garage owned by HTK, leased to Rokan, and subleased to AMPCO, and the parties worked out a stipulated judgment. But all these plans of mice and men came a cropper when the voters said “No,” and disapproved the project. SMP then assigned its rights under the stipulated condemnation judgment to HTK thus transforming it from a condemnee into a condemnor. Unsurprisingly, the other two condemnees, Rokan and AMPCO, objected. The trial court found that by giving up its rights under the stipulated judgment and assiging them to a private party (HTK), SMP abandoned its condemnation, so it no longer could be pursued or implemented by anyone else. The trial court also awarded attorneys fees of $247,609 to AMPCO and $194,170 to Rokan. On appeal, these rulings were affirmed.

Eminent domain, said the Court of Appeals, is an attribute of sovereignty that is controlled by the legislature. And while the legislature may delegate that power to others by adoption of appropriate legislation, the delegatees may not subdelegate it to still other parties. Said the court: “If condemnation means anything it is that the govermental entity actuallly takes privately owned property and assigns it to public use. Here, SMP by its own admission did not intend to take the property at all, but instead intended to allow HTK (as SMP’s judgment assignee) to remain the private owner of the property.” That would be a no-no.

So here is the bottom line: the power of eminent domain is a sovereign power. It may be legislatively delegable by statute, but it is not asignable by the delegatee.

The Florida Supreme Court Sticks to Its Guns on the TIF Referendum Requirement Ruling, But Reargument is Scheduled for October 9th.

Don’t look now, folks, but the Florida Supreme Court has just fired a shot that may be heard around the redevelopment world. In Strand v. Escambia County, 2007 Fla. LEXIS 1598 the court held that while the use of TIF bonds pledging future tax revenues to repay them may continue to be used in the future, under the Florida Constitution the issuance of such bonds must be approved by the electorate. That means no more quiet, off-budget deals raising huge amounts of money for private redevelopers through upstart loans without the taxpayers’ say-so.

We don’t have the data for Florida, but out here in La-La Land outstanding bonded indebtedness for redevelopment has gone from $5 billion in 1985 to $61 billion in 2006, and counting. That is one hell of a lot of change to saddle local taxpayers with (without their knowledge or approval), particularly  in a country that was founded on the idea that there should be no taxation without representation.

Will Strand  stop redevelopment in Florida? Hardly. The process is too well entrenched and the beconing call of the “free lunch” of promised local prosperity too seductive to inspire the voters to shut off the money spigot altogether. But it sure will serve as a restraint on the more far-out redevelopment schemes proposed by wealthy, well-connected redevelopers who got to be the new Robber Barons. After all, redevelopment is nothing more than commercial development with the prefix “re” attached to it. It may be government-financed but it is a business activity that carries the usual market risks to those who would pursue it. Oh sure, those spiffy new malls look great, but some of them go under, leaving the local municipality and its bondholders holding the bag. As California Court of Appeal Justice Macklin Fleming put it in one of his opinions, redevelopers and their municipal allies promise a bigger economic pie with bigger shares for everyone. But, as Fleming also put it, the landscape is littered with failed projects whose promised bigger economic pie turned into pie in the sky.

So let’s stay tuned and see how the Strand court’s reasoning fares in Florida and how it influences the law in other states. One way or another, it should be interesting.

UPDATE: Responding to the panic stricken wails of Florida cities and counties, on September 28th the Florida Supreme Court issued a revised opinion clarifying that TIF bonds that had already been issued at the time of its original decision, are not subject to the new referendum requirement, but new ones will be.   The revised opinion removes any  issue with regard to bonds issued or validated prior to this opinion becoming  final and they are unaffected. Additionally, the revised opinion removes any  issue with regard to certificates or obligations issued in reliance upon State  v. School Board of Sarasota County, 561 So. 2d 549 (Fla. 1990), and they are  similarly unaffected. The court has scheduled rehearing oral arguments for October 9th. Stay tuned.



The Wicked Flee When No Man Pursueth


For a bit of intellectual amusement, don’t miss the opinion of the Wisconsin Supreme Court in City of Janesville v. CC Midwest, Inc. (Wis. 2007) 734 N.W.2d 428. Though the issue before the court had to do with what must Wisconsin condemnors do to provide the displaced condemnee-owners with suitable, statutorily-requied replacement property under the state relocation assistance laws, various Justices took off, pro and con, on a side isue of  the unsoundness of the rule denying compensation for business losses in eminent domain cases. Since that issue was not before the court, we can only attribute this outburst to a case of a judicial guilty  conscience, since everyone we know of agrees that the rule denying compensation for business losses that are actually suffered by condemnees, lacks both a doctrinal and a moral foundation, and judicial expressions on the subject are replete with utter nonsense. Thus, though business goodwill is routinely valued by courts in tort, contract, divorce and tax cases, in eminent domain litigation judges refuse to do so, often mouthing Justice Holmes’ absurd justification that business losses are so “uncertain in their vicissitudes” — whatever that means — that they plumb can’t be valued when a business is destroyed as a result of condemnation of the land on which it is located and it cannot move to a new location either at all, or not without suffering substantial damages.

Why are we so unkind to the judiciary on this point? We’re glad you asked. To begin with, courts have never had any trouble valuing business goodwill when public utilities are taken.  Also, when a statute makes business goodwill compensable in eminent domain, judges abruptly lose their inability to value it, and take on the task as any other valuation controversy.  People etc. v. Muller (1984) 36 Cal.3d 263, 681 P.2d 1340. Or, when a business property it taken temporarily, there is no problem valuing its goodwill either. See Kimball Laundry Co. v. United States (1949)  338 U.S. 1.

To find out just how nonsensical that “vicissitudes” argument is, try making it when Uncle Sam wants to tax business goodwill. Just you try!

Anyway, Justce  Prosser’s dissent in Janesville is must reading, and in footnote 1, it meticulously collects some 14 law review commentaries (a half century’s worth) criticizing that archaic rule.

Zap ’em, Danno

Big news in Connecticut which is becoming the Mother of All Condemnation cases. The Town of Branford just got zapped with a $12.4 million verdict in a condemnation case. Actually, as best we can figure it out from local press reports — which are usually something less than the Bible when it comes to accurate portrayal of condemnation cases — there were actually two cases involved here. One was your plain ol’ garden variety condemnation case: the town took a 77-acre tract on which plaintiff-developers had planned to build 354 condominiums, and  deposited compensation of slightly above $1 million. In Connecticut, condemnations are non-judicial, but the owner may challenge the taking and/or seek additional compensation in a separate court action. The developers did just that, with a twist. They challenged the taking as being in bad faith and  sought compensation beyond the $1 million fair market value paid by the Town when it took the land. The trial court upheld the taking and awarded increased compensation to the tune of $4.6 million for the taken land.  Nice result, but no big deal legally. The big deal came in the form of the trial court also allowing the developers to seek compensation for lost profits and collateral losses they suffered as a result of the condemnation which they contended to be in bad faith (just how so is unclear from the local press reports, especially since the trial court upheld the Town’s right to take), which leaves us puzzled as to what the bad faith activity was.   Usually, a finding of bad faith on the part of the condemnor puts the kibosh on the taking. But not here. We are sure all that will be explained soon — so stay tuned.  Right now it looks to us like the bad faith was contended to be the Town’s desire to frustrate development of the subject property and offering pretextual reasons for the taking.

 And so, in addition to the $4.6 million just compensation for the taken land, the developers also received a verdict for $12.4 million “for lost profits and investments costs.” Also, since the developers were evidently optionees rather than owners of the subject property, the land’s owner-optionor also recovered compensation of $340,000.

The facts here are somewhat reminiscent of the New Jersey MiPro case (Mount Laurel Township v. MiPro Homes (N.J. 2006) 910 A.2d 617), where the New Jersey Supreme Court, over a strong dissent by Justice Rivera-Soto, upheld a questionable taking transparently  filed to stop a developer from building on his land, and denied recovery for his consequential losses.

Meanwhile, back in Connecticut, Branford officials find these awards outrageous and are vowing to pursue the Mother of All Appeals. It sure will be interesting to see how this one turns out. So like we said, stay tuned.  We will update this item as more facts and legal contentions become available.

Tellin’ It the Way It Is

As anyone who has read our stuff on the subject of ripeness in inverse condemnation knows, we take a dim view of the intellectual and moral hash that judges have made of pertinent law that appears to serve no rational purpose except to prevent constitutionally aggrieved property owner from getting their day in court. See e.g. Gideon Kanner & Michael M. Berger, Shell Game! You Can’t Get There from Here — Supreme Court Ripeness Jurisprudence in Takings Cases at Long Last Reaches the Self-Parody Stage, 36 Urban Lawyer 671 (2004). And if you think that we feel that way because we represent owners in these cases, we offer here for your consideration the views of a sitting Justice of the Texas Supreme Court, joined by two of his colleagues. They speak for themselves, leaving only the troubling question of why citizens should respect a judiciary that is capable of such mistreatment of faultless people  who look to the courts for protection of their constitutional rights.

“This case illustrates how the government can use the ripeness requirement to whipsaw a landowner. The government can argue either that there was no request for a variance when there should have been, or that the request was not specific enough, or that it was not reasonable enough, or that there was insufficient time  to consider it–and therefore the landowner’s regulatory takings claim is premature, unripe, and should be dismissed. Or else, it can argue that a request for a variance would be a waste of time, or that none was authorized, or that the landowner should have known his ridiculous proposal would never be seriously considered–and therefore his claim is late, barred, and should be dismissed. One way or the other, the result is the same. Ripening a regulatory-takings claim thus becomes a costly game of “Mother, May I”, in which the landowner is allowed to take only small steps forwards and backwards until exhausted.”

“When [the landowner] first sued [the] . . . County , alleging that an ordinance aimed at stopping [it] from using its property as a nonhazardous industrial waste landfill effected a compensable taking, the County argued that it ‘ha[d] the authority to grant a variance, or even to rescind the ordinance, if [the landowner] present[ed]  sufficient justification’, and therefore [the owner’s] action was not ripe because it ‘ha[d] not obtained a final decision from the County’. This embarrasing fact is buried in a footnote to the Court’s [majority] opinion and never discussed. After [the plaintiff] lost, it submitted a lengthy and detailed request for a variance, which the County summarily denied. Now in this, [the plaintiff’s] second state-court suit against the County on its regulatory-takings claim (it has also sued three times in federal court), the County argues that the prior action was ripe after all and bars this one because requesting a variance was futile. The Court agrees and holds that [the plaintiff] should not have ‘another bite at the apple’, as if being forced to bob for apples is the same as ever getting a bite.” Hecht, J., joined by Medina and Willet, J.J., dissenting in Hallco Texas, Inc. v. McMullen County (Tex. 2007) 221 S.W.3d 50, 63-64, footnotes omitted.