Fun With Condemnation Law The Lawyers and The Appraisers (One Good - - PowerPoint PPT Presentation

Fun With Condemnation Law

The Lawyers and The Appraisers (One Good Guy; One Bad Guy)

Howard Roston, Esq. , CRE Direct Dial 612.492.7441 hroston@fredlaw.com Jason Messner, MAI (952) 895-1205 messner@valuationcounselors.net Igor Lenzner, Esq. (320) 656-3517 Direct ilenzner@rinkenoonan.com Tim Vergin, MAI (612) 349-9275 tvergin@dresi.net

Just Compensation Is Not Necessarily Fair Market Value

Background

 The lawyer’s duty is to zealously advocate for his or her client within the bounds of the law. See American Bar Association, Model Rules of Professional Conduct; Preamble and Scope.

• A lawyer is an advocate.
• In a condemnation case, a lawyer argues for just compensation which may or may not be the same as

fair market value.  The appraiser’s duty.

• An appraiser is obligated to value property in a manner that is impartial, objective and independent.

The Appraisal Foundation Appraisal Standards Board, Uniform Standards of Professional Appraisal Practice (“USPAP”), Ethics Rule

• USPAP makes it clear that an Appraiser may not be an advocate for a client. However, once the

appraisal is complete, the appraiser may defend the appraisal and advocate for the appraisal.

OUTLINE

• Just Compensation is Not Always the Same as Fair Market

Value

• Circumstances where Just Compensation may not equal Fair

Market Value.

• Circumstances where Just Compensation may exceed Fair

Market Value.

• Statutory Compensation Requirements.

The Constitutional Requirement

The Constitutional requirement, however, is not fair market value, but just compensation. U.S. Const. Amend V; Minn. Const. Art. 1, § 13.

Just Compensation is Often the Same as Fair Market Value

The requirement of just compensation means that the government must "put the owners in as good a position pecuniarily as if the use

• f their property had not been taken." Monongahela Nav. Co. v.

United States, 148 U.S. 312, 37 L. Ed. 463 (1893); Olson v. United States, 292 U.S. 246, 78 L. Ed. 1236 (1934). The owners are to be "made whole" for their losses. Olson, supra. Just compensation is

• rdinarily measured by the "fair market value" of the property (and

property rights) that are taken or damaged. "Fair market value" is defined to mean the amount of money, in cash, which a purchaser, willing but not obligated to buy the property, would pay to an

• wner, willing but not obligated to sell, both parties taking into

consideration the highest and best use of the property. City of St. Paul v. Rein Recreation, Inc., 298 N.W.2d 46, 49 (Minn. 1980).

Sometimes Fair Market Value and Just Compensation Are Not Synonymous

• Impact of Project: Any increase or decrease in market value due to the

proposed public improvements may not be considered in determining the market value of the property taken. Just compensation does not include the right to any gain or loss in value resulting from the taking. Housing & Redevelopment Auth. v. Minneapolis Met. Co., 273 Minn. 256, 260-261, 141 N.W.2d 130 (1966). This rule is called the "project influence" rule. This, however, should not be confused with “consequential damages” in partial taking cases. The owner is entitled to consequential or severance damages as discussed below.

• Statutory Minimum Compensation. When an owner must relocate, the

amount of damages payable, at a minimum, must be sufficient for an

• wner to purchase a comparable property in the community and not less

than the condemning authority's payment or deposit under section117.042, to the extent that the damages will not be duplicated in the compensation otherwise awarded to the owner of the property. For the purposes of this section, "owner" is defined as the person or entity that holds fee title to the property. Minn. Stat. § 117.187.

What an Appraiser Sees

What a Lawyer Sees

The traditional approaches to value are widely accepted. However, the United States Supreme Court has eschewed efforts to place artificial restrictions of the choice of valuation methodologies. In CSX Trans., Inc. v. Georgia State Bd., 552 U.S.9 (2007). The Petitioner challenged the tax assessment and argued, in part, that the State appraiser’s methodologies were flawed. The State asserted that the railroad was powerless to challenge the methods employed by the State’s appraiser and could only challenge the application of the methods. Both the District Court and a divided Court of Appeals for the Eleventh Circuit agreed. The United States Supreme Court reversed. According to the United States Supreme Court: Given the extent to which the chosen methods can affect the determination of value, preventing courts from scrutinizing state valuation methodologies would render § 11501 a largely empty command. It would force district courts to accept as “true” the market value estimated by the State, one of the parties to the litigation. States, in turn, would be free to employ appraisal techniques that routinely overestimate the market worth of railroad assets. By then levying taxes based on those overestimates, States could implement the very discriminatory taxation Congress sought to eradicate. On Georgia’s reading of the statute, courts would be powerless to stop them, and the Act would ultimately guarantee railroads nothing more than mathematically accurate discriminatory taxation. We do not find this interpretation compelling. Instead, we agree with Judge Fay in dissent below: “Since the objective of any methodology is a determination of true market value, a railroad should be allowed to challenge the method[s] used [by the State] in an attempt to prove that the result ... was not the true market value of its property.” 472 F.3d, at 1294. The United States Supreme Court also noted that the methods of valuation employed by an appraiser are selected by the choice of an appraiser and not the dictate of any statute or regulation. Id.

Should the Law Dictate Appraisal Methodology?

Examples (Access)

Access Loss

Before Access

After Access

Median

Marketplace

Loss of access for a convenience store in many (or most) circumstances will impact the value of the store. BUT……

Supreme Court

Court of Appeals

Jury Instructions

Access Law is Not Fully Resolved

• Baseline:

Is access reasonably suitable and convenient? A district court considering whether the closure of a median crossover point constitutes a taking must consider whether the landowner retains reasonably convenient and suitable access in at least one direction.

• Dale Properties, LLC v. State, 619 N.W.2d 567, 573 (Minn. App. 2000).
• “(N)ot every denial of immediate or convenient access will support a claim

for damages. Hendrickson, 267 Minn. at 446, 127 N.W.2d at 173. An abutting property owner suffers compensable damage for loss of access

• nly when the owner is left without “ ‘reasonably convenient and suitable

access to the main thoroughfare in at least one direction.’ ” Gannons, 275

• Minn. at 19, 145 N.W.2d at 326 (quoting Hendrickson, 267 Minn. at 436,

127 N.W.2d at 167). The imposition of even substantial inconvenience has not been considered tantamount to a denial of reasonable access. Johnson

• v. City of Plymouth, 263 N.W.2d 603, 607 (Minn.1978).

Before Median

After Median

Special Statutes

• A business owner is entitled to reasonable compensation, not to exceed

the three previous years' revenues minus the cost of goods sold, if the

• wner establishes that the actions of a government entity permanently

eliminated 51 percent or greater of the driveway access into and out of a business and as a result of the loss of driveway access, revenue at the business was reduced by 51 percent or greater. Determination of whether the revenue at the business was reduced by 51 percent or greater must be based on a comparison of the average revenues minus the average costs

• f goods sold for the three years prior to commencement of the project,

with the revenues minus the costs of goods sold for the year following completion of the project. A claim for compensation under this section must be made no later than one year after completion of the project which eliminated the driveway access. The installation of a median does not constitute elimination of driveway access.

• M.S.A §117.186 Subd. 4

Example Project Infuence

“It has long been recognized that a condemnee cannot benefit from the prospective increase in land value to be occasioned by construction of a public project.” First American Nat. Bank

• v. State, 322 N.W.2d 344, 346 (Minn. 1982). To permit

compensation to be either reduced or increased because of an alteration in market value attributable to the government project itself would not lead to just compensation. Reynolds, 397 U.S. at 16. Therefore, “any increase or decrease in market value due to the proposed improvement may not be considered in determining market value.” Housing & Redevelopment Authority v. Minneapolis Metropolitan Co., 141 N.W.2d 130, 135 (Minn. 1966). This is known as the “project-influence rule”.

1.2 Billion Dollar Stadium (Rounded)

Subject Property Condemned for the Stadium

Property Condemned Later

Business Losses

• The general rule is that no compensation will

be paid for the goodwill value or going concern value of a business operated on real estate that is being condemned.” 25 Minn. Prac., Real Estate Law § 10:30 (2014 ed.)

Business Losses

• The business losses prohibition applies whenever

a business can potentially be relocated, even if the business is not actually relocated, even if there are no suitable places for it to be relocated in close proximity to its original site, and even if the owner can show the goodwill of the business was somewhat damaged by the taking. Lambrecht, 663 N.W.2d at 548

Loss of Going Concern

Loss of Going Concern (Business Damages)

In certain circumstances the business property owners (and occupants) can have legal claims that include damages for loss of their going concern.

• Subd. 2.Compensation for loss of going concern.
• If a business or trade is destroyed by a taking, the owner shall be compensated for loss of

going concern, unless the condemning authority establishes any of the following by a preponderance of the evidence:

• (1) the loss is not caused by the taking of the property or the injury to the remainder;
• (2) the loss can be reasonably prevented by relocating the business or trade in the same or a

similar and reasonably suitable location as the property that was taken, or by taking steps and adopting procedures that a reasonably prudent person of a similar age and under similar conditions as the owner, would take and adopt in preserving the going concern of the business or trade; or

• (3) compensation for the loss of going concern will be duplicated in the compensation
• therwise awarded to the owner.

The question – what does “destroyed mean?”

Loss of Going Concern

• The Merriam-Webster Dictionary defines

“destroy” as “to cause (something) to end or no longer exist.”

Loss of Going Concern

• Minn. Stat. § 117.186 defines “going concern”

as “the benefits that accrue to a business or trade as a result of its location, reputation for dependability, skill or quality, customer base, good will, or any other circumstances resulting in the probable retention of old or acquisition

• f new patronage.”

Construction Interference

Construction Interference

• The Court in State by Humphrey v. Strom, 493

N.W.2d 554, 560–61 (Minn. 1992).

• In a partial-taking condemnation action,

evidence of construction-related interferences is admissible, not as a separate item of damages, but as a factor to be considered by the finder of fact in determining the diminution in market value of the remaining property.

Construction Interference

• Offsite Construction (impacts value)
• VS
• Construction on property taken (impacts

value)

Offsite Impacts

Temporary Detour

Onsite Impacts

Construction Interference or Temporary Taking ? (work beyond easement limits)

Temporary Takings (alteration as part of temporary use)

Coffee Chain v. Neighborhood Coffee Shop

Minimum Compensation

• When an owner must relocate, the amount of

damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community and not less than the condemning authority's payment or deposit under section 117.042, to the extent that the damages will not be duplicated in the compensation

• therwise awarded to the owner of the property.

For the purposes of this section, "owner" is defined as the person or entity that holds fee title to the property. M.S.A. § 117.187

Frustration of Plans

Visibility

• The Court in State by Humphrey v. Strom answered the

question of legal claims concerning loss of visibility as follows:

• In a partial-taking condemnation action, to the extent that

loss of visibility to the public traveling on a redesigned highway results from changes in the property taken from the owner, evidence of that loss is admissible, not as a separate item of damages, but as a factor to be considered by the finder of fact in determining the diminution in market value of the remaining property.

• State by Humphrey v. Strom, 493 N.W.2d 554, 561–62

(Minn. 1992).

Visibility

• Grossman:
• … appellants are not entitled to compensation for their loss of view.

It is undisputed that the state did not physically take any of appellants' property. Also, the trial court properly concluded that the grade changes to I-394 and the pedestrian bridge were all proper street uses. See, e.g., McCarthy, 203 Minn. at 429, 281 N.W. at 760; Willis v. Winona City, 59 Minn. 27, 34-35, 60 N.W. 814, 816 (1894). This court has never recognized a right to be seen from an abutting highway, and we decline to create such a right in this case. Accordingly, appellants are not entitled to compensation for their loss of view over the abutting highway.

• Grossman Investments v. State by Humphrey, 571 N.W.2d 47, 51–52

(Minn. App. 1997).

Visibility

Visibility

Environmental Contamination

• Environmental Contamination
• A case study in how Just Compensation and Fair Market

Value are Not Synonymous. Relevant holdings in Anda:

• -Contaminated property is to be valued “as remediated”

rather than as contaminated or clean.

• -Condemnation awards may not be reduced by remediation
• costs. Evidence of contamination is only admitted to

determine the value of the property “as remediated.”

• -Conditions existing at the time of taking may be

considered even if discovered after the taking.

• Moorhead EDA v. Anda, 789 N.W.2d 860 (Minn. 2010).