The price of progress: WisDOT proposes changes to eminent domain laws

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Paul Nilsen says he is tired of attorneys ripping off the Wisconsin Department of Transportation.

Those lawyers, according to WisDOT’s assistant general counsel, abuse the state’s eminent domain laws to win client settlements and paychecks for legal fees.

“Instead of making public improvements,” Nilsen said, “we’re lining the pockets of trial attorneys.”

Alan Marcuvitz says he has a simple solution for WisDOT: Make fair offers when acquiring land for public projects through eminent domain, and the legal bills will drop to zero.

“The only time they get stuck with fees is when they lowball the property owner,” said Marcuvitz, an attorney with Milwaukee’s Michael Best & Friedrich LLP. “How can anyone say they are being taken advantage of?”

Eminent domain laws give government the right to buy property for public projects even if a property owner does not want to sell. But landowners can hire attorneys to appeal in court the amount the state offered for the land.

According to state law, if lawyers can show WisDOT is 15 percent low on its offer, the agency is on the hook for the legal fees, no matter the size of the settlement.

And those legal fees add up. In fiscal 2008, the state spent $8 million — both for elements of its defense and for property owners’ legal fees — on eminent domain cases, climbing from from $1.4 million in fiscal year 2002, according to WisDOT reports. The 2008 expense was despite just 22 appeals from property owners out of 992 properties acquired for WisDOT projects.

The agency tried to eliminate the expense in Gov. Jim Doyle’s 2009-11 state budget by proposing an overhaul of the eminent domain law. The proposal caps the amount of money landowners can be reimbursed at 33 percent of the difference between what the state offers and what the court awards.

The proposal also would require property owners to share their appraisals soon after receiving them rather than springing the information on the state in court.

WisDOT’s proposal was stripped from the budget, but it returned as a standalone bill. The legal fee cap and appraisal requirement would “grossly” restrict property owners’ rights in Wisconsin, said attorney Benjamin Southwick of Richland Center. Capping legal fees would prevent most attorneys from taking eminent domain cases, he said.

Requiring an exchange of appraisals would make it more difficult for owners to get their legal fees paid, he said.

Worse, Southwick said, is WisDOT would lose the incentive to make fair offers. Most property owners — about 92 percent, Southwick said — who have land WisDOT needs do not contest the state’s initial offer and likely take less than they are owed.

“(WisDOT officials) know they can get away with murder on the 92 percent,” Southwick said.

“Now they want to get away with murder on 100 percent.”

A worst-case scenario is a Sun Prairie property WisDOT bought in 2004 for the Highway 151 expansion. The agency offered $300,000 for the land, which was zoned for agricultural use but was next to a major commercial development, said John Kassner, an attorney with Murphy Desmond SC in Madison who worked on the case.

The property owner appealed and then settled with WisDOT for $1.6 million, according to WisDOT records.

The agency bought 27 properties for the expansion. Seven offers were appealed, four won additional money and only one — the $1.6 million settlement — broke the 15 percent threshold to have lawyer fees paid, according to WisDOT records.

Kassner said WisDOT is only required to pay what a certified appraiser determines a property is worth. In that sense, he said, property owners never come out ahead; they only break even.

In the $1.6 million case, the property owner’s appraisal came in significantly higher than the settlement, Kassner said, but the risk of a jury trial convinced the owner to take less. “The only reason (WisDOT officials) have a problem is because they’re being unfair,” Kassner said.

“If they made fair offers, there’d be nothing to fight about.”

But the argument works both ways. The way the system runs now, Nilsen said, attorneys are profiting by dragging out cases that could easily be settled.

“I think these attorneys are really misguiding their clients,” he said.

Nilsen said he has seen cases where landowners received less than $10,000 more on a piece of land and attorneys took home more than $50,000 in legal bills.

Lawyers, Nilsen said, advise their clients to accept WisDOT’s first offer on land and then sue for damages on the very deal they just accepted. State law lets landowners contest a deal up to six months after it is signed.

Yet those cases amounted to less than one-half percent of WisDOT’s land acquisitions in the past five years. In fiscal year 2008, four landowners appealed after accepting WisDOT’s offer, according to WisDOT statistics. Two did so in 2007.

In fact, few landowners who deal with WisDOT challenge the agency’s offers. WisDOT used eminent domain to obtain less than one out of 12 properties every year since fiscal year 2002. In all other cases, the agency simply reached a deal with landowners for the property.

Lawyers argue that their ability to challenge WisDOT at all proves the agency lowballs property owners.

That’s not the case, said Richard Dickson, who reviews appraisals for WisDOT. He said if WisDOT’s appraisal misses something a property owner’s appraisal catches, the state will match the higher appraisal. At the same time, he said, if a landowner’s appraisal is lower than WisDOT’s offer, the state will not reduce its offer.

“We’re trying to get to just compensation,” Dickson said.