St. Bernard Parish Government v. United States, 2015 BL 127431 (Fed. Cl. May 01, 2015) was a takings claim brought by a local government and property owners affected by flooding by various hurricanes between 2005 and 2009. Plaintiffs alleged that the U.S. Army Corps of Engineers (USACE) was negligent in failing to maintain a 76 mile long navigational channel and that this failure, combined with storm surges resulted in the damage and made these claims cognizable under the Federal Tort Claims Act and Louisiana tort law. In previous litigation, the courts had made a factual finding that the USACE was negligent, but also found the USACE had discretionary immunity under the Torts Claim Act. This phase of the case dealt with Plaintiffs’ takings claims. The record showed that there were clear concerns that the USACE work would compromise the ability of the soils to hold together in the event of storm surges, that the USACE was more focused upon providing for navigability of waterways over safety of shorelands and starved for fiscal resources for the full works. The court found that the Mississippi River—Gulf Outlet Channel (MRGO) was a “funnel” of destruction and had already destroyed several thousand acres of wetlands in its creation. The federal government was contemplating its closing the MRGO when a series of hurricanes, including Katrina and Rita, caused great damage to the area.
The court determined it had jurisdiction under the Tucker Act, 28 U.S.C. § 1491 to deal with damage claims against the federal government under other substantive law, such as the Takings Clause, and found that the law of the case had already established standing. The court also found sufficient lay and expert testimony to support the connection between the construction of the MRGO and the damages claimed on the basis of a temporary taking. Under Arkansas Game & Fish Comm. v. United States, 133 S. Ct. 511, 522-23 (2012) the plaintiff in a temporary takings case must plead and prove:
(1) a protectable property interest under state law; (2) the character of the property and the owners’ “reasonable-investment backed expectations”; (3) foreseeability; (4) causation; and (5) substantiality.
In a condemnation when only a portion of the property is taken, the property owner is entitled to just compensation based on the value of the property taken plus damages to the remaining property, if any. However, if the damage to the remaining property can be cured, the property owner is only entitled to the lesser of the damage to the remaining property or the cost to cure.
Impact on remaining property and the ability to “cure” damage is probably the most subjective area in any condemnation appraisal. The ODOT ROW Manual instructs the appraiser to first determine if the remaining property is damaged and to quantify that damage. Only after the appraiser has determined there has been damage and the extent or amount of the damage is the appraiser to consider if the damage can be “cured” and, if so, the “cost of the cure.” Often, however, an appraiser will go directly to the cure and its costs, bypassing any quantification of the amount of the damages. The “cure” and “cost of cure” are often the significant issue in partial takings with the condemner and owner positions challenging each other as to what would constitute a cure and its costs.
In two recent condemnation trials, the State of Oregon has sought to exclude evidence and testimony about potential “cures” considered by the property owner’s appraiser in concluding the just compensation for a partial taking. In both cases, the State’s appraiser presented evidence that the damage to the property owner’s remaining property could be cured, and measured the damages to the remaining property using the “cost-to-cure” valuation methodology. In each case, the property owner’s appraiser considered and rejected potential cures as not resulting in a cure or the cost was more than the damage. The owner’s appraiser determined the damage to the remainder, i.e., its diminution in the value, based on a change in the highest and best use of the property, as the appropriate measurement of just compensation.
The owner did seek to present testimony and evidence as to potential cures and then costs. The State argued to exclude this evidence based on the Oregon Evidence Code Rule 403 and the Oregon Supreme Court’s holding in Tunison v. Multnomah County, 251 Or 602 (1968). The State argued that evidence of the potential cures rejected by the property owner’s appraiser would mislead and confuse the jury, resulting in substantial prejudice to the State that would outweigh the probative value of the evidence. The specific language in Tunison relied on by the State reads:
"[The property owner argues] that since, under the circumstances . . . restoration costs may be used as a measure of damages, it is necessary for the appraiser to make an initial estimate of such costs in order to determine whether they were less than the depreciation in the market value of the property not taken and thus binding upon the owner. We reject this argument. The appraiser may find it advisable to make such a calculation but if the owner seeks to recover the depreciation in the market value of the property remaining, he cannot testify as to restoration costs. To permit him to do so would be to inject into the case evidence which the jury is likely to improperly consider in estimating the owner’s loss. (emphasis added.)"
Id. at 604-05
In response, the property owners made three arguments: (1) that the property owner was entitled to put on evidence of potential cures considered and rejected by the appraiser to rebut the State’s evidence that the damage to the remainder should be measured by the State’s proposed “cost-to-cure”; (2) that USPAP requires an appraiser to consider “cost-to-cure” in determining just compensation in a partial taking; and (3) that later Court of Appeals opinions favor allowing the jury to consider evidence of competing valuation methodologies in determining just compensation. The trial court denied the motion to exclude in each case finding that the property owner was entitled to present the rejected “cures” as rebuttal evidence. The trial courts appeared to reject (or at least did not reach a decision on) the property owners’ other two arguments.
The Tunison case is most often cited in support of using a “cost-to-cure” methodology in valuing damages to the remainder in condemnation cases. As a result, the State’s use of this case in an attempt to exclude competing “cost-to-cure” evidence is clever, but also disconcerting. First, USPAP (and the ODOT Right of Way Manual) requires an appraiser to consider potential cures in determining damages to the remainder in a partial taking case. To exclude evidence of rejected potential cures would prevent an appraiser from testifying to a key underpinning of his or her opinion on value. Second, the argument runs counter to Oregon Court of Appeals cases issued after Tunison that set a liberal standard for presenting expert testimony on valuation methodology to juries. See Tri-Met v. Posh Ventures, LLC, 24- Or App 425, at 437-438 (2011) (finding that jury is entitled to “hear expert testimony regarding the appropriateness of a particular valuation methodology”) and City of Bend v. Juniper Utility Co. 242 Or App 9, 20 (2011) (it is left to the trier of fact to assess the evidence, including expert testimony regarding the appropriateness of a particular valuation methodology, and to then make a factual call as to the fair market value of the property in question). Third, any danger that a jury will be misled or confused by evidence of rejected “cures” is mitigated by the uniform jury instructions used in most condemnation cases. For these reasons, it is the authors’ opinion that a property owner should be entitled to present evidence of competing potential cures in it case in chief, and not just as rebuttal evidence.
Effectively, the State asserted that only it could present evidence and testimony of a potential cure and its costs, but the owner, if relying on just compensation using diminution in value to the remainder, could not present testimony or evidence as to a cure or its costs, i.e., what is good for the goose is only for the goose. Fortunately, in both cases, the court allowed the owner to put in evidence and testimony regarding potential cure and their costs as rebuttal to the State’s assertion of a specific cure and its costs. Overall, a practitioner should carefully consider this aspect of the Tunison case in preparing for any trial that involves a partial taking in which either party intends to present “cost-to-cure” evidence.
by Edward J. Sullivan and Carrie A. Richter
In a 5 to 4 decision last month, the United States Supreme Court ruled that a local government must make “rough proportionality” findings whether it approves or denies a development in those cases in which conditions of approval (including those involving payment of money) are discussed. In that case, Koontz v. St. Johns River Water Management District, the Supreme Court dealt with a development permit denial because the applicant, Roy Koontz Sr., refused to either dedicate additional property or pay to improve a wetland elsewhere to offset the loss of wetlands resulting from this development.
Known as the “Nollan/Dolan limitations on unconstitutional conditions,” a local government may not condition the approval of a land use permit on the owner’s relinquishment of a portion of his property unless there is a nexus (connection) and rough proportionality between the government’s demand and the effects of the proposed land use. Justice Alito, writing for the majority, found that these limitations apply whether the local government approves or denies the permit. In other words, denials that state potential conditions concerning what would be necessary to gain approval must be framed as roughly proportional under the Takings Clause of the Fifth Amendment.
In addressing application of the doctrine on obligations to pay money, the majority distinguished previous holdings such as Eastern Enterprises v. Apfel, where a former mining company was required to pay for the medical benefits of retired miners, by finding the Fifth Amendment applied if there were a direct link between the government’s demand and a specific piece of real property. According to the majority, allowing a pay-in-lieu option to a real property exaction cannot be a surrogate for avoiding rough proportionality. How far the monetary exaction limitation reaches is difficult to say. The majority says that it “does not affect the ability of governments to impose property taxes, user fees and similar laws…that may impose financial burdens on property owners” but goes on to state that this decision does not distinguish between “taxes from takings.” Although systems development charges may fall within the ambit of a “user fee” exception, they are the result of a particular demand on property. Thus finding the limits of this case is likely something that only lawyers will love.
Writing for the dissent, Justice Kagan, agreed with the application of Nollan/Dolan to permit conditions, even if they are not accepted and the permit is then denied. Kagan cautioned that applying this test to a demand to pay money “bristles with conceptual difficulties. And practical ones too: How to separate order to pay money from…well, orders to pay money, so that the locality knows what is can (and cannot) do.” According to the dissent, this lack of direction “casts a cloud” on local government action. “If every suggestion could become the subject of a lawsuit under Nollan/Dolan, the lawyer can give one recommendation: Deny the permits, without giving Koontz any advice – even if he asks for guidance.”
Some, like Professor Echeverria, in writing for the New York Times (read article here), agreed with the dissent, claiming that this decision will cast such a pall that it will discourage discussions between developers and governments regarding appropriate permit conditions and will deprive the public of needed community benefits that come from the imposition of development fees including wetland mitigation efforts, road and utility upgrades, or park improvements. Although the situation is likely not that dire, California has required rough proportionality findings for conditions that require the payment of money for years and the same was true in Oregon when the Oregon Supreme Court noted the former limit on the Takings Clause to real property in West Linn Corporate Park v. City of West Linn. Certainly Oregon’s tradition of requiring written findings in the case of both land use permit approvals and denials will provide one vehicle to help achieve this result.
What is more likely true is that this decision is going to make the whole process of obtaining a development permit less certain. Local government planners will be wary of speculating in advance about calculating the improvement or fees that will apply through pre-application conferences and the like until the applicant has incurred the costs associated with conducting detailed transportation or infrastructure demand plans necessary to evaluate impacts. Developers should expect that providing adequate findings will take longer. In a time when governments seem to be falling over themselves to simplify the system and expedite development, the property rights advocates might conclude that this decision is little more than a pyrrhic victory.
In 2010, the 9th Circuit (the federal appellate court that includes most of the Western United States) ruled in a case involving the City of West Linn that conditions to development approval requiring off-site improvements, such as the installation of a pipeline or road improvement, were not subject to the same “rough proportionality” obligations imposed for when the government requires acquisition of land. West Linn Corporate Park, LLC v. City of West Linn. The Oregon Supreme Court responding to a series of questions asked by the 9th Circuit as part of its deliberations concluded that where a regulation requires that the owner pay a sum of money, “the regulation is not tantamount to acquisition.” The US Supreme Court declined further review and the West Linn case settled this matter until now.
This past month, however, the Supreme Court heard oral argument in Koontz v. St. Johns River Management District, requiring that court to grapple with the right of government to impose off-site conditions in return for permit approval. Coy Koontz Sr. wanted to develop 3.7 acres of wetlands and protected uplands located in a habitat protection zone controlled by the local St. Johns River Water Management District in Florida. Koontz applied for a permit offering to place his remaining 11 acres of his property into a conservation easement. The District determined that additional mitigation to offset the loss of wetlands was required in addition to dedicating the 11 acres. The District asserted Koontz would likely be required to pay for improvements for these off-site wetlands owned by the District but located elsewhere and said it was open to other alternatives. Koontz refused the District’s specific proposal and his permit was denied.
Koontz filed suit in Florida state court arguing that there was no “essential nexus” or “rough proportionality” between the government request for off-site improvements and the impacts from the proposed development. The state trial court ruled in favor of Koontz finding a taking but the Florida Supreme Court reversed finding that there was no “dedication of real property” and therefore, no taking occurred. In October, 2012, the US Supreme Court accepted the case.
As with the plaintiff in the West Linn case, Koontz argued that the off-site mitigation measures suggested by the district in order to allow the development on his property to go forward were not “roughly proportional” to the impacts from this development and further, these tests apply to conditions suggested by the government in a permit negotiation process but never actually imposed. The District and a number of amici argued that Koontz’s claim was inconsistent with the text and history of the Takings Clause, as well as the Court’s takings jurisprudence, and that no taking could have occurred because no property was actually taken. The brief filed by the amicus American Planning Association argued that “a ruling for Koontz would effectively constitutionalize all run-of-the- mill land use negotiations and risk grinding both the land use process and the judicial system itself to a halt.”
In the fall of 2011, a jury awarded David Hill Development $6.5 million against the City of Forest Grove for constitutional violations resulting from its delaying issuance of a final subdivision approval. In October, 2012, responding to a motion for judgment notwithstanding the verdict, the judge largely upheld the jury’s decision, modifying it only with regard to the claim that obligations to make off-site improvements violated the Takings Clause.
As an initial matter, the city argued that David Hill could not recover because the city was not the sole cause of the nine-month delay between the time of issuance of the preliminary and the final subdivision approvals. The court disagreed, finding that the causation requirement for a Section 1983 claim for violation of constitutional rights requires only a showing of government delay, separate and apart from delays that may be attributable to other causes, that caused the loss. In summarizing the evidence presented during trial, the judge found David Hill had a reasonable expectation that it would receive the final subdivision permit two-weeks after receiving preliminary approval and that the city’s conduct in not issuing the permit for none months, including stop work orders, caused the delay.
On October 3rd, the United States Supreme Court heard an unusual takings case, one brought by one public entity against another. Arkansas Fish and Game Commission v. United States involves the state’s claim for damages for loss of timber in its Dave Donaldson Black River Wildlife Management Area in northeastern Arkansas by flooding authorized by the federal Corps of Engineers over a six year period. The flooding was authorized to enable farmers on other parts of the Black River more time to harvest their crops. Not only was timber lost, but the area became less attractive to duck hunters and bird watchers.
The Corps argued that its temporary release program did not constitute a taking and that a contrary determination would endanger flood control programs across the country. The state won its case in the trial court, securing $5.7 million in damages, but a divided Federal Circuit reversed that ruling, finding no taking because the flooding was temporary and not inevitably recurring. The US Supreme Court granted certiorari and will rule by next June.
In their arguments before the Supreme Court, the advocates had very different views of the policy implications of their positions – and those of their opponents. The Deputy Solicitor General argued that riparian ownership entailed certain flooding risks and that the Corps required broad discretion in dealing with flood waters without being troubled by takings claims. The implicit suggestion was that federal or state governments would not build dams if by doing so they would be liable to one or another landowner for the consequences of flooding. On the other hand, the State of Arkansas argued that the practical difference between permanent or recurring flooding and the six years of flooding in this case that caused root rot and loss of timber and habitat values was imperceptible. A landowner would have been entitled to damages had her lands flooded permanently or every year as part of a government project.
Another issue in this case was that of damages. The timber and habitat at issue would have been subject to natural flooding. Thus, if the Supreme Court finds a taking, would the state be entitled to any flooding damages or merely those which were the result of the releases in this case – which would be an evidentiary nightmare for the state. Further, what would be the implications of a positive takings outcome for the state on future dam projects? Justice Scalia, the Lex Luthor of planning, observed during oral argument that the issue was whether the landowner or taxpayers absorbed the loss. If it will be taxpayers, then future congressional authorizations of these public works projects must then account for possible claims. Should the farmers or utilities, or city dwellers who benefit from these projects be required to pay the unknown amounts of these losses? It is no longer adequate to say “the government” will do so and it is unlikely the federal government will provide a blank check to underwrite these losses.
However, allocation of loss is not the issue before the court. Rather, it is whether the federal government is liable to a takings claim as a result of discretionary water releases where it must choose and balance damage done to multiple parties. The Corps chose to give farmers more time to harvest their crops at the expense of flooding state timberlands for a longer time. Would the Corps also be liable if it decided to preserve the timberlands and allow earlier flooding of the farmlands? If so, it appears that no public works good goes unpunished.
It is not uncommon for property owners to believe that government actions have taken or significantly decreased their property values to the extent the actions constitute a “taking” of the property, i.e. “inverse condemnation.” In some cases this condition may be the result of “condemnation blight.” What isn’t common is for a court to agree.
The seminal case in Oregon is Lincoln Loan Co. v State Hwy Comm’n, 274 Or 49 (1976), where the Oregon Supreme Court determined the plaintiff had at least pled sufficient allegations to claim condemnation blight. The allegations included the State having sent letters to neighbors and tenants of its intent to take the property, the State condemning and destroying nearby properties, giving the plaintiff’s tenants notice they would have to move and filing condemnation actions. Given all this, the Court concluded the plaintiff had pled sufficient allegations to constitute condemnation blight.
In a recent case in Linn County, Hall v. State of Oregon by and through the Oregon Department of Transportation, 252 Or App 649 (Oct. 10, 2012), a property owner claimed ODOT had committed condemnation blight. The property owner plaintiff in Hall owned land near an I-5 interchange that was in the preliminary planning phase by ODOT. It is common, and in this case was required, that the government set out options as part of the planning process. One of the potential options of ODOT was to close the interchange, thereby landlocking the property. In accordance with federal planning requirements, ODOT informed the plaintiff owner, the general public and affected governments of all of its potential options for the interchange, including the option to close it. ODOT held public meetings in furtherance of the planning process, and when the closure option was shown as being unpopular, ODOT revised the closure option with a more delayed process. Notwithstanding, the plaintiff sued ODOT, claiming its actions constituted an inverse taking because of the “blight” it caused to plaintiff’s property.
TransCanada, a Canadian energy company has been granted eminent domain rights to take a 50 foot easement through a property owners farm in Texas. The issue before the local court was whether TransCanada had “common carrier” status for the Keystone XL project, which would allow it to use eminent domain to acquire property for the project when the property owner would not agree to grant an easement. The case highlights an unusual loop hole in the Texas law which simply allows a company to claim its status as a common carrier on a simple one page form to avail itself of condemnation authority.
The common carrier process has recently been challenged successfully in the State Supreme Court where the court refused the pipeline company’s condemnation claim. Texas Rice Land Partners v. Denbury Green.
"Private property is constitutionally protected," Justice Willett wrote, "and a private enterprise cannot acquire condemnation power merely by checking boxes on a one-page form."
Most states, including Oregon and Washington, have strict statutory provisions granting condemnation authority and procedures to establish just compensation for property acquired for a public use.
This has been a controversial project due to its scope and the type of product being disturbed through the pipeline. The pipeline project history can be viewed at here.
At a time where infill development appears to be the only area seeing growth in an otherwise flat building environment, the Oregon Court of Appeals issued an important reminder last month to local governments when approving these minor land divisions and development. The doctrine of unconstitutional conditions is triggered when local governments require a person to give up the right to receive just compensation in exchange for a discretionary benefit, conferred in the form of a permit, where the benefit has little or no relationship to the property that must be conveyed. This analysis, more popularly referenced as Nollan/Dolan, two US Supreme Court decisions establishing the relevant tests, requires that there is a nexus between the exaction and the public policies sought to be advanced and, assuming a nexus, that the burden imposed be roughly proportional to the impacts caused by the development. Although this connection is with large-lot subdivisions or commercial projects is often obvious in that they place a discernible demand on public infrastructure, that nexus gets far more tenuous with small developments, as was the case in Brown v. City of Medford.
From time to time governments need to take property for a public purpose. Both the federal and state constitutions allow this, provided the government pays “just compensation.” If the government can’t reach an agreement with the property owner, it can take the property under its eminent domain authority – condemnation – by filing a lawsuit naming the property owner (and any other party having an interest in the property to be taken). The issue in a condemnation lawsuit is: what is the amount of just compensation owed?
We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.