Voluntary sale to condemnor inadmissible

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“The sales of the adjacent properties were accomplished as part of the airport expansion and the sellers were well aware of the County’s intentions to eventually acquire their land for this purpose.” Hon. Patricia S. Curley Wisconsin Court of Appeals

A property owner challenging a condemnation award may not introduce the sale price of comparable properties sold voluntarily to the condemning authority, the Wisconsin Court of Appeals held on Aug. 30.

In 1987, Milwaukee County began planning to expand General Mitchell International Airport. A master plan was approved by the Milwaukee County Board of Supervisors in 1993, and included obtaining properties located near the airport for airport use. One property was owned by Gloria Pinczkowski, and consisted of a large lot and residence.

Acquisition of the Pinczkowski property was approved, along with the properties adjacent to it. In 1997 and 1998, respectively, the County purchased the properties located to the north and south of Pinczkowski’s after negotiating with the owners.

In 1999, the County offered to purchase the Pinczkowski property for $93,027. Because the Pinczkowski lot was larger than average in size, and because the property had a “higher and better use” if used for airport purposes, the County was required by Wis. Admin. Code Comm 202.68(7)(a)2 and (7)(c), respectively, to separate the amount attributable to the residence from the total amount — the “carve-out” value.

The County determined that the “carve-out” value of the residence was $53,748, or 57.8 percent of the total amount offered, and the remainder was thus attributed to the surrounding land. The County also determined that the reasonable cost of a replacement residence would be $77,926.

Pursuant to sec. 32.19(4)(a)1, the County subtracted the “carve-out” value from the cost of a replacement residence, yielding $24,178. According to the letter sent to Pinczkowski, a housing replacement payment was available to her, as long as she purchased a replacement home that cost at least $77,926. Pinczkowski, however, rejected the County’s $93,027 offer and later purchased a new residence for $155,000.

Through an Award of Damages, Milwaukee County acquired the Pincz-kowski property by eminent domain, in 2000. The County paid Pinczkowski a total of $350,000 in compensation, which was the calculated fair market value of the property. Dissatisfied with this award, Pinczkowski challenged it, and a condemnation trial was held in March 2003.

At trial, Pinczkowski sought to introduce evidence of the purchase prices of the two adjacent properties, claiming that they were made voluntarily and, consequently, that these sales were relevant to the value of her property.

The trial court barred Pinczkowski from introducing the evidence, finding that, because the properties were purchased as part of the airport project, they were not arms-length transactions. The jury determined the fair market value of the property was $300,000, reducing Pinczkowski’s award by $50,000. Another $15,000 was deducted due to environmental factors, resulting in a final award of $285,000.

Pinczkowski also brought another action concerning the housing replacement payment, and the cases were consolidated. The court held that Pinczkowski was not entitled to collect the $24,178 housing replacement payment mentioned in the earlier notice sent by the County, because it was conditional on acceptance of the initial offer.

Pinczkowski appealed, but the court of appeals affirmed in a decision written by Judge Patricia S. Curley and joined by Judge Ralph Adam Fine. Judge Ted E. Wedemeyer dissented from that portion of the decision upholding the exclusion of the evidence of the sales of the adjacent properties.

Adjacent Properties

Relying on three Wisconsin Supreme Court cases, the court rejected Piczkow-ski’s argument that the sales were voluntary, arms-length transactions, rather than sales as part of an on-going project: Blick v. Ozaukee County, 180 Wis. 45, 192 N.W. 380 (1923); Kirkpatrick v. State, 53 Wis.2d 522, 192 N.W.2d 856 (1972); and Herro v. Department of Natural Resources, 67 Wis.2d 407, 227 N.W.2d 456 (1975).

“Wisconsin should follow suit and declare an exception to the general exclusionary rule for admission of comparable sales involving a party possessing eminent domain power where the transaction is voluntary and one of arms length.” Hon. Ted E. Wedemeyer In dissent

Pinczkowski argued that the circumstances surrounding the sales had all the indicia of arms-length transactions, based on the following facts: the County used standard real estate purchase contracts when purchasing the properties; the deeds did not contain the standard language found when acquired under threat of condemnation; there were no certificates of compensation following the closings, a statutory requirement for a negotiated purchase under condemnation pressure; and the sellers paid transfer taxes, which would be unnecessary if the properties had been taken by condemnation. Pinczkowski also noted that the County’s own expert described the sales as “voluntary.”

However, the court found that it was public knowledge as early as April 1992 that the County intended to purchase all the properties. The court concluded, “it would be expected that in furtherance of a large expansion project, such as what occurred here, some property owners, like those owning
the adjacent properties, knowing that their properties eventually would be condemned, ‘voluntarily’ agreed to a sale after they were approached by the County. Thus, the sales of the two properties adjacent to the Pinczkowski property can hardly be characterized as ‘not made under threat of condemnation.’”

Even though formal eminent domain proceedings were never begun with respect to the other properties, the court concluded the sales were not arms-length transactions, quoting from Kirkpatrick at length as follows:

“The problem with evidence of sales of other land to the condemning authority is that the price may very well not be the fair market value of land, no matter how comparable the land may be in its physical aspects. This is so merely because the price is not determined by an arms-length transaction, but rather by dealings between one who must buy and another who has no choice but to sell.

“The rights of an owner to recover just compensation for the taking of his land are not to be measured by the generosity, necessity, estimated advantage, or fear or dislike of litigation which may have induced others to part with the title to their real estate, or to relinquish claims for damages by reason of injuries thereto. It would be equally unwise, unjust and impolitic to make it impossible for a condemnor which has taken land by eminent domain to compromise the claims of one owner without furnishing evidence against itself in all similar claims. If a sale is made to a condemnor that is about to institute proceedings if it cannot acquire the land by purchase at a satisfactory price, the amount paid is not a fair test of market value” Kirkpatrick, 53 Wis.2d at 526.

Pinczkowski cited cases from other jurisdictions that sales prices of such properties can be considered in some circumstances, but the court declined to address them, stating, “Given the longstanding and well-established precedent, we see no need to look to foreign law as the facts here fall squarely within the rule and do not permit a different result. The sales of the adjacent properties were accomplished as part of the airport expansion and the sellers were well aware of the County’s intentions to eventually acquire their land for this purpose.”

Housing Replacement

The court also concluded that Pinczkowski was not entitled to a housing replacement payment pursuant to sec. 32.19(4)(a).

The court noted that the letter explaining the housing replacement payment formula contained the following information: “This payment has been determined to be $24,178.47, based on a comparable housing study of houses presently for sale on the real estate market, provided you sell your house to Milwaukee County for the above sated appraisal amount, which included a carve-out amount of $53,748.00, and you purchase a replacement dwelling which costs at least $77,926.40 (emphasis added by court).”

By electing to hold out for a higher award, the court concluded that Pinczkowski became ineligible for this housing replacement payment.

The Dissent

Judge Wedemeyer dissented in part, concluding that the trial court erred in refusing to permit the sales of the properties adjacent to the Pinczkowski property into evidence, because the sales could be considered voluntary, arms-length transactions.

Wedemeyer concluded that Blick, Kirkpatrick, and Herro were all distinguishable because eminent domain had been instituted against the similar properties or was imminent. In addition, the modern trend in eminent domain law allows admission of such evidence, and rejects the tenet that whenever a sale involves an entity possessing the power of eminent domain, the sale can never be considered voluntary.

The Supreme Court in Kirkpatrick referred to 4 Nichols on Eminent Domain 12.3113(2) (3d ed. 1978), which states, “[i]f a sale is made to [a body] about to institute [condemnation] proceedings if it cannot acquire the land by purchase at a satisfactory price, the amount paid is not a fair test of market value.”

Wedemeyer noted, however, that the full rule in Nichols’ treatise states, “If a sale is made to [a body] about to institute condemnation proceedings if it cannot acquire the land by purchase at a satisfactory price, the price paid is not a fair test of market value. However, the mere fact that [a body], which purchased land by voluntary sale, was invested with the power of eminent domain does not in and of itself show that the sale was a compulsory settlement rather than a fair transaction in the market.” 5 Nichols on Eminent Domain 21.02[6].

Wedemeyer divided property acquired by an entity with eminent domain power into three categories: formal condemnation process; negotiated conveyance before formal initiation of condemnation; and entirely voluntary transactions.

Wedemeyer found that the first two are considered sales “under threat of condemnation.” Under the second category, certain guidelines are to be followed: the purchaser has to provide the property owner with certain information and materials, pursuant to sec. 32.05(2a); after the acquisition, the property owner is served with a document indicating the property owner has the right to appeal the amount paid; the transaction is exempt from transfer tax, pursuant to sec. 77.25(12); and the deed must indicate that the transfer was made under threat of condemnatio
n in order to qualify for this tax exemption.

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Wedemeyer wrote, “Based on my review, the transactions involving the properties adjacent to the Pinczkowski property were arms-length transactions, pursuant to the third alternative described above. The County entered into standard real estate purchase contracts for each property involved; there was no indication on the deed that the properties were acquired under threat of condemnation as required by Wis. Stat. Sec. 32.05(2a), and the sellers paid transfer taxes.”

Wedemeyer added, “the County’s expert witness who investigated these sales determined that they were voluntary. In Kevin Zarem’s appraisal review of the sale of 5607 South 6th Street and 5673-75 South 6th Street, he stated that ‘[t]he opportunity to acquire [these] site[s] to alleviate peak seasonal parking problems prompted the County to negotiate with the property owner to voluntarily sell their property.’”

Wedemeyer also concluded that the fact that the properties were acquired pursuant to the same project is not an absolute bar to admission of evidence of the sale prices.

After citing numerous cases from other jurisdictions, Wedemeyer concluded, “I conclude Wisconsin should follow suit and declare an exception to the general exclusionary rule for admission of comparable sales involving a party possessing eminent domain power where the transaction is voluntary and one of arms length. We need to specifically address this issue and align with the other jurisdictions that permit the exception to the exclusionary rule.”

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David Ziemer can be reached by email.