Property Class Notes 1/20/04


Back to Poletown…wasn’t the nice neighborhood the people lived in a public benefit in itself?  The courts would say that that’s a question for the legislature.  Some people may find that quite unsatisfying.  The attitude of the courts is that if the legislature sees a public purpose that justifies the cost of eminent domain and that purpose is legitimate, then that’s enough.  The court doesn’t ask this very good question.  Absent a constitutional issue, we believe in legislative supremacy, which the courts interpret to mean that they must give great deference to legislative findings including the finding that giving the property to GM was better than keeping it the way it had been for a long time.


Just compensation


Braunstein practices in this area!  This is the issue that you’re almost always talking about as a practitioner.  It’s the only issue to be decided in most cases.  In law school, we deal with the most difficult cases for obvious reasons, but these aren’t the cases that most frequently arise.  The biggest question in most cases is this just compensation question.


The rule is pretty easy to state: just compensation is the fair market value of the property taken, or at least that’s a big part of it.  This is something you should know because it comes up a lot.


Fair market value


Fair market value is the amount that a willing buyer would pay a willing seller, both reasonably well informed and neither under a compulsion to buy or sell.  In order words, it’s the selling price in a market that works well.


Some things are fungible and easy to find fair market value for: for example, a pound of copper or a share of GM.  One of the problems with land is that there is a “thin” market for land, that is, a particular parcel of land doesn’t sell frequently.  So the fair market value question becomes tougher; you need good proof including things like expert witnesses.


Other compensation


You’re also entitled to damages in addition to just compensation.  Frequently, the government doesn’t take all of a landowner’s property.  It depends on how much land they own and what the needs of the condemning authority are.  Consider widening a highway, for example.  The government is only going to take a portion of the land and leave the remainder.  But this may result in damage to the “residue”, or the land remaining.  The remaining land may not be appropriate for all the valuable uses it could have been used for before.  You can get damages for the decreased value of the land you continue to own.


Some legislatures have determined that the courts’ definition of just compensation is not sufficiently liberal in compensating landowners.  Congress has enacted the Federal Relocation Assistance Act.  The landowner gets moving expenses and, to some extent, the cost of replacement housing in addition to everything listed above.  In any case in which the federal government is the condemning authority or in which the federal government is directly involved with the condemning authority, relocation expenses will have to be paid.


Juries tend to sympathize with a landowner.  In a sense, if you sit on a jury, it’s your tax money that’s going to buy the land in question.  Therefore, you might expect that the jury will be someone tight-fisted with what is effectively their money.  However, with a sympathetic defendant (like a residential landowner), they will often be more liberal than you expect.


Some point out that just compensation isn’t really sufficient to put the landowner in the position they would have been in if there had been no take.  The courts respond that this is part of the burden of citizenship.


Factors which are excluded


You don’t get compensated for sentimental value, historic value, annoyance, and the value of any business you have going on that property.


Consider the dude with the shotgun in Poletown.  If he moves somewhere else, he’s going to get a different place, but it’s not a true replacement for what he had.


The only way you get compensated for historic value is if there may be buyers on the market who are interested in “collecting” the property because of its historical significance, for instance a Frank Lloyd Wright house or a president’s birthplace.


If you operate a business on the taken property, you can’t get compensated for the value of the business.  Take “Kingy’s” in Lancaster, for example.  The courts see the value of the business as moveable.  You could open up the same business somewhere else and have the same “goodwill” and reputation.


So just compensation, in many cases, is arguably insufficient because it doesn’t fully compensate people for the losses they suffer as a result of the taking of their property.  It can be argued in turn that we should either change (increase) what we mean by just compensation or be more careful with what we mean as “public purpose”.


Alternatively, it can be argued that we accept as a burden of citizenship that all property is subject to possible eminent domain.


Almota Farmers Elevator & Warehouse Co. v. United States


It’s a simple case!  You’ve got a grain elevator and a railroad.  The government wants to build a dam.  What happened?


Almota had been leasing the property from 1919 to 1967.  They built lots of stuff on the land in service of their grain elevator business.


Almota isn’t entitled to the value of the land because they don’t own it.  The government argues that the amount of just compensation is the value of their seven years remaining on the lease.


Based on the government’s theory, how would we value the lease?  Almota is paying rent.  In this case, we take the fair market rental value (how much a grain operator would pay to lease the land as it’s been improved) and subtract the rent.  Assume this value is positive.  That’s the value of the lease per rental period (per month or per year).  Compare this to our apartment leases: given that our leases are short term, our rents are probably equal to fair market value and thus our leases are worthless in and of themselves.


So, take the value of the lease per year times seven and a half years: that gives you the value of the lease that the government would have to pay according to the government’s theory.


What is Almota’s theory?  Almota improved the land by building the grain elevator.  They say that they just rent the land from the railroad, but they have sort of a symbiotic relationship with the railroad.  The railroad need Almota because they provide the wheat that fills the railroad’s cars and thus makes the railroad a profit.  If Almota decides to sell (assign) their lease, they would get paid not just for the seven years remaining times the value of the lease, but rather they would get paid more because the assignee could reasonably expect they would get the value of the improvements (the grain elevator) as well, which would include their value over their remaining useful life.


The improvements belong to Almota at least until the expiration of the lease.  Unless we’re told otherwise, we would assume the railroad gets possession of the grain elevator at the end of the lease.


The “two-take” theory


The government theorizes that they could have taken control of the land from the railroad by eminent domain and then kicked Almota off at the end of 7.5 years.  The problem is that when you value property for the purposes of eminent domain, you do so without reference to the project the land will be used for.  The government can’t use its eminent domain power to force down the value of the property.


This happened with Campus Partners.  The city and OSU acquired the property quite slowly over a period of years.  They didn’t like the bars on High Street.  They drove down property values of the surrounding properties they hadn’t yet acquired.  They made the rest of the neighborhood look bad, and thus lowered the value of this other property they wanted to grabby grab.


So when you value the property the government is taking, you do it as if the eminent domain proceedings weren’t proceeding.


So what does the Court adopt for the standard?  Does the government have to pay for every expectancy of being able to renew a lease?  They consider three factors in establishing the fair market value:


1.     The unbroken succession of leases

2.     The useful life of the improvements

3.     The value of the ongoing business to the railroad


The Court looks at the expectations of a potential buyer.  People in the grain elevator business might want the property.  They would be willing to pay not just the value of the remaining years of the lease, but also some money for the value of the improvements that have been constructed because it’s reasonable to expect that the railroad will want grain folks to remain there.  You consider an objective buyer on the open market, notwithstanding the fact that the property is getting eminent domainitized.


United States v. 50 Acres of Land et al.


Not much to this one.  In this case, private property gets a new definition.  The Court defines private property for the purposes of the Fifth Amendment to include public property owned by states and municipality.  State or municipally owned property is treated the same way as property owned by private individuals for the purposes of the Fifth Amendment.


The city argues that they should get the cost of a substitute landfill facility.  They think they should get something different than the fair market value standard.  The Court rejects this and says they’ll stick with fair market value.  When would the replacement cost be a proper valuation for just compensation?  The only time you could use it would be when it’s too hard to find out the fair market value.  If there’s no market at all (as opposed to a thin market) then you’d have to use some other method of valuation, and “substitute facility” might be the method you use.  For example, if you gave property to the city for a park open to the public for free and then the federal government comes in and takes it for some reason, you might argue that there’s no market for property that you can’t use for any profitable purpose if the title stipulates that it must be used for a park that is open to the public with no fee.


On the other hand, it turns out there is a real market for landfills.


The Court says that they are very reluctant to use the “substitute facilities” rule when a local jury judges a federal government which appears to them to have unlimited resources.  The jury might become “untethered” from reality, as it were.


What we’ve been talking about so far


What does it mean to own property vis-à-vis the government?  Our conclusion is that we own property subject to the power of the sovereign to just take our property rights.  Some things can just be taken.  Some things can be taken but must be compensated.  The point is that whether the government pays just compensation or not, your title is subservient to the state.


Now we’re going to go back to Chapter 1 and talk about some different ways to acquire title.  How do you acquire title to a fox?  How do you acquire title to something you find on a bus?


Don’t get bogged down in the details of this.  The importance of the following material is what it means to own property vis-à-vis other individuals with claims to the property.


Then we’ll also see the law being used as an instrumentality.  When we do the fox case, we’ll find that the courts didn’t like foxes and wanted to design the law in order to have as many foxes killed as possible.  However, their design may have unintentionally led to the protection of foxes.


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