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

Should the Law Dictate Appraisal Methodology? 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.

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 only 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 owner 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 of 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