Eminent domain case leaves unanswered questions

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Perhaps the only certainty regarding a city’s eminent domain power and responsibility to provide comparable replacement property is that more litigation will ensue.

So say a handful of practitioners dissecting the Wisconsin Supreme Court’s ruling in City of Janesville v. CC Midwest Inc. In the July 11 decision, the city was allowed to take the business property of a transportation operation, as long as it was able to identify reasonably similar replacement property under Wis. Stat. sec. 32.05.

A Splintered Court

The decision contains a plurality opinion, two concurrences and two dissents.

The lead opinion, penned by Justice Patience Drake Roggensack, concluded that the relocation assistance benefits provided by sec. 32.19(3) and (4m) do not have a direct relationship to the fair market value of a tenant’s interest, and therefore, are incidental or consequential damages that are not considered in the constitutional requirement for just compensation.

With regard to “comparable replacement property,” the lead opinion relied upon Dotty Dumpling’s Dowry Ltd. v. Community Development Authority of Madison, 2002 WI App 200, 257 Wis.2d 377, 651 N.W. 2d 1, to reject the notion that condemnees might never have to vacate property if the condemnor could not identify a replacement property acceptable to the condemnee that could be acquired for an amount not exceeding the condemnation award plus relocation benefits.

Roggensack wrote, “We conclude that the statutory language shows that relocation assistance provided under Wis. Stat. § 32.19(2)(c) does not require identification of a property that is identical to the property condemned or that, at the moment of identification, the property, without modification, can be used by the business that was relocated. Rather, it requires identification of a property that with modification can be used for the occupier’s business. For example, the land area of a property identified may be sufficient, but the building may have been used for another purpose and may need remodeling in order for the business to carry on its activities as it has in the past.”

The lead opinion additionally held that a proposed comparable replacement property was reasonably similar, although it lacked “cross-docks,” a configuration that allows trucks being unloaded to be directly across from other trucks receiving the goods.

Justice David T. Prosser Jr. vigorously disagreed with the lead opinion on its Takings Clause analysis. He cited the “business losses” rule in his dissent, which limits constitutionally required compensation to the value of real property and fixtures taken, and which can be “palpably unfair to business interests.” Prosser relied upon Kimball Laundry Co. v. U.S., 338 U.S. 1 (1949), in which the government had taken possession of a laundry during World War II for temporary use by the army, and where “consequential losses” were ultimately awarded to the laundry’s owners under a just compensation analysis. Prosser’s dissent additionally praised the Court of Appeals’ statutory analysis in the case.

Justices Jon P. Wilcox and Ann Walsh Bradley wrote concurrences, while Justice Louis B. Butler Jr. wrote another dissenting opinion.

Lingering Questions

Mark J. Steichen, of the Boardman Law Firm in Madison, represented the City of Janesville. With regard to the lead opinion on the constitutional issue, he told Wisconsin Law Journal that the preeminent treatise on the topic, “Nichols’ The Law of Eminent Domain,” emphasizes that relocation benefits are statutory rather than constitutional. He believes that this authority and others likely led CC Midwest to decline to brief the issue before the high court, thereby waiving the argument. That waiver precludes any further review by the U.S. Supreme Court. He briefed the issue only because he expected it to come up in CC Midwest’s responsive briefs. It never did.

He adds that, should Justice Prosser’s dissent ultimately become law, it would be a “radical change” in eminent domain law.

James S. Thiel, of the Wisconsin Department of Transportation Office of General Counsel agrees. He and others authored an amicus brief for the agency because it is the state’s largest condemnor.

If the high court would’ve ruled for CC Midwest, it would’ve meant that one tenant-occupied business on the property could indefinitely hold up a project of statewide importance. This was expressly rejected by the Wisconsin Court of Appeals in Dotty, and now by the Supreme Court, he says.

“The lower court decision from which the appeal was taken basically said the city had to match up a new comparable replacement business perfectly, while the city’s position was it was doing the best it could. We think that should be the law,” says Thiel.

Thiel adds that there is protection under the law for very unique properties for which there are no realistic comparable sales data available, such as a cathedral or other “special purpose property,” so that the condemnor must pay the estimated costs of reproduction, minus the depreciation of the current facility.

This wasn’t the case for CC Midwest. Nor would it likely be the case for a property on which a strip club or other adult business is located, a junkyard business or a rendering business or some other enterprise is located that most people don’t want in their backyards. Frequently, there are difficult issues facilitating their relocation.

In Steichen’s mind, while he is pleased that the decision went his client’s way, the case leaves two questions open for further litigation.

First, the case doesn’t deal directly with what happens when there is no comparable replacement property. The court of appeals did so in Dotty, and offered a sound framework, in his opinion — but the high court didn’t and undoubtedly will have to address it later, if the Legislature doesn’t do so first.

Second, how far must a municipality go to satisfy the statutory requirement now that, under CC Midwest, modifying a structure is part of the equation?

Steichen reasons that the Legislature set forth what steps condemnors must take: pay the statutory maximums, plus, per Dotty, provide services to assist the property owner or tenant in locating a replacement property. If they did this, they were done. It was very clear.

“What if you have a vacant piece of property, and it’s cheaper to just build a structure on it from scratch than it is to remodel an existing structure? We don’t know what the costs were in this case, because CC Midwest didn’t express any interest in remodeling any property, so we didn’t go through that step. But anyone who’s familiar with construction can tell you that, often times, building new is cheaper than trying to retrofit.

“So, the key is you have to be able to operate a business on the property you’re going to move to. … It’s got to be the right zoning. But beyond that, where is the line between what’s comparable enough under the CC Midwest decision? We don’t know. We’re going to end up with a lot of litigation on that,” Steichen says.

Not Wisconsin’s Answer to Kelo

The case “didn’t do business, or those concerned with property owners
’ rights, any favors,” says Christopher J. Jaekels of the Milwaukee office of Davis & Kuelthau S.C. “But it probably doesn’t make Wisconsin a whole lot worse as a place to be doing business, either.”

Jaekels, the immediate past-chairperson the Administrative and Local Government Law Section of the State Bar of Wisconsin, did not participate in the case, but watched the matter closely.

“A lot of people have been looking for the great post-Kelo [v. City of New London, 545 U.S. 469 (20050] test case regarding eminent domain and in particular chapter 32.05.

This wasn’t it,” he says. In the end, the case boiled down to essentially in-depth factual analysis of relocation assistance and what’s to be considered comparable replacement property, rather than constitutional jurisprudence.

The fact-intensive nature of the case is responsible for the high number of dissents and concurrences, Jaekels opines.

“I’ve represented a lot of condemnors and condemnees, and I’m not surprised that a dispute arose in this case. The fact is, cities and property owners almost never agree on what’s similar replacement property. The city just wants to find something reasonably comparable, and the property owner just wants something that’s as good or better than what they’re leaving.”

What does make the decision somewhat unusual, according to Jaekels, was that the high court went ahead and picked one of the properties, instead of remanding the case for the trial court to make that decision.

For his part, Steichen summed up the decision’s bottom line for municipalities for the League of Wisconsin Municipalities’ September 2007 newsletter as follows:

“Going forward, condemnors who anticipate difficult circumstances for relocating a business will need to be even more careful in preparing for and documenting its efforts and its contacts with the business, and to plan for additional time to obtain possession of the property. It will be important, not only to ask the business about what it considers to be essential requirements for a replacement property, but to assess whether its claims are borne out by the actual characteristics of the existing property and its use. It will also be important to document the business’ cooperation or lack thereof in developing a replacement location and to prepare to prove that a location is an adequate replacement regardless of the business’ lack of cooperation.”

Alan Marcuvitz, of the Milwaukee headquarters of Michael Best & Friedrich LLP, served as lead counsel for CC Midwest. He did not return a phone call seeking his commentary.