patrick a. hennessey, esq. michael h. leifer, esq. palmieri, tyler, wiener, wilhelm & waldron...

Patrick A. Hennessey, Esq.Michael H. Leifer, Esq.

Palmieri, Tyler, Wiener, Wilhelm & Waldron

Eminent Domain Case Study:

The Odyssey

Eminent Domain Case Study:

The Odyssey


The Subject PropertyThe Subject Property


Public Agency's Position: In order to make any use of

approximately 31 acres of a 34 acre site: Property Owner must dedicate

approximately 1/3 of its land area in the shape of a giant X…

And pay in excess of $25 million to construct a new freeway ramp system (The “X” Project).

The Starting Point—1998 The Starting Point—1998


Public Agency pays just under $76 million for full take of the 34 acre site.

The End Point—2010 The End Point—2010


The Property Owner: Two families with significant real estate

portfolios consisting of numerous types of real estate. Development experience.

Does it matter who the property owner is and what he/they have?

It shouldn’t.

The Players—The Property Owner


Examples of Property Owner Holdings




The Players—The Property OwnerExamples of Property Owner

Holdings


The City/Redevelopment Agency: Well-known, well-heeled smaller City in

Orange County. City planned to and became the beneficiary of a gift of 1000 acres of federal land (from military base closure) for which it had grandiose development plans.

Though it denied it, the City needed the X for its development.

The Players—The Public Agency

The Players—The Public Agency

The District

The Players—The City/ Redevelopment AgencyThe Players—The City/

Redevelopment Agency


The City's position: The X is fixed. The Property Owner has to dedicate all right

of way for the X. The Property Owner either has to pay or construct the X.

The Property Owner couldn’t build until the X was built.

The Property Owner knew what it was buying. It should have known what it was buying. It got a "deal" when it bought the property.

The Dispute—The City’s Position

The Dispute—The City’s Position


The Property Owner’s position: The City had to pay just compensation for the X

right of way. Just compensation in this case included severance

damages and precondemnation damages. Other than payment of normal development fees,

the City was not entitled to impose extraordinary fees for the construction of the X on development of the Subject Property.

The Subject Property represents an "in-fill" development site. Any "deal" at purchase was due to the City's X project and could not be considered.

Concerning implementation of highest and best use—Catch 22.

The Dispute—The Property Owner’s Position

The Dispute—The Property Owner’s Position


Years of DelayYears of Delay


City’s Construction DelayCity’s Construction Delay

1998

2005

Owner purchases the property.

1999

City tells Owner construction will start.

2003

City files condemnation action- takes the “X”.

City finally starts construction.

2008

City finally ends construction.


Giant Partial Take: City deposits just compensation for parts taken, severance damages and compensation for temporary construction easements.

Condemnation Action Commenced 2003

Condemnation Action Commenced 2003


Judge determines that the City’s precondemnation offer was inadequate. City required to amend offer.

Later, City asserts the right to take challenge as a defense to delay.

Right to Take ChallengeRight to Take Challenge


Meanwhile, City’s construction does not start until 2005—completed in late 2008.

Construction Does Not Commence For YearsConstruction Does Not Commence For Years


When construction of the X commences, more intrusive than expected by City.

Longer duration. Exceeded the period of the temporary

construction easements. All the while, real estate market

increases 1998-2007.

Construction of the XConstruction of the X


Precondemnation Damage Entitlement—Litigated 2003

through 2007

Precondemnation Damage Entitlement—Litigated 2003

through 2007


The City’s Conduct and Delay Rendered the Subject Property Unmarketable Unusable Undevelopable

Testimony of Michael F. Waldron, MAI

Testimony of Michael F. Waldron, MAI


Testimony of City’s ExpertsTestimony of City’s Experts


On January 11, 2006 the City’s Real Estate Expert

Testified:


Testified:

The City’s requirements for dedication and payment of construction costs for the City project were extreme and atypical burdens on the Property Owner.



Testified:


Testified:The extreme and atypical burdens imposed by the City rendered the Subject Property:

• Unmarketable

• Undevelopable

• Unusable


Full Take StipulatedFull Take Stipulated


Liability for Precondemnation Damages

Established

Liability for Precondemnation Damages

Established


April 2007

Date of Value—UpdatedDate of Value—Updated


Highest and Best UseHighest and Best Use


No Dedication or Fee Impact for ValuationNo Dedication or Fee Impact for Valuation


Stipulation Between Owner and the City:


Stipulation to File Amended Complaint and Liability for Precondemnation Damages




Excerpt from Stipulation Page 4




“3. [Owner] has sustained precondemnation damages. The City is liable to [Owner] for all precondemnation damages that have accrued and will accrue between September 8,1998, when [Owner] closed escrow on purchase of the Subject Property, and the date the City files its Second Amended Complaint in this proceeding.”

Excerpt from Stipulation Page 2 line 10-13




“6. For purposes of determining the highest and best use of the Subject Property absent the City’s precondemnation liability and other project-related activities, the Subject Property shall be considered to have been continuously available and suitable for development to industrial, commercial, retail, automotive and vehicle sales, residential, civic center and mixed uses since September 8,1998.

7. The City shall make no demand or argument that [Owner] should have to dedicate any property or pay any fee for either the City’s Phase I or Phase II components of its infrastructure project in order to realize the highest and best use. The determination of highest and best use shall be made consistent with this provision.”

Excerpt from Stipulation Page 2 line 25 to page 3 line 5


California Form Jury Instruction, CACI 3509 “I have determined that:

there was an unreasonable delay between [date of announcement of intent to condemn], when the [name of condemnor] announced its intent to condemn [name of property owner’s property, and [date of filing], when this case was filed] [and][insert description of unreasonable conduct].

In determining just compensation you must award damages that [name of property owner] has suffered as a result of the [name of condemnor]’s [delay/[describe unreasonable conduct]]. Such damages may include [insert damages appropriate to the facts, e.g., the cost of repairs, the loss of use of the property, the loss of rent, loss of profits, or increased operating expenses pending repairs, and diminution of market value].”

Measuring Precondemnation Damages

Measuring Precondemnation Damages


The Valuation ExchangeThe Valuation Exchange


City’s Valuation Position: The City discounted the value of the

Subject Property in such a way so that it was not attributing any value to the 1/3 of the Subject Property which the Property Owner was to dedicate to the City.

The Valuation Exchange—The Fair Market Value



Property Owner’s Valuation Position: The Property Owner valued the entire

Subject Property—all 34 acres—pursuant to the Stipulation.




City’s Position: City’s Expert: “None” City’s Position on Precondemnation Damages

despite the Stipulation: Property Owner did not lose anything because the

Subject Property appreciated. Property Owner did not lose anything because it

didn’t try to develop the Subject Property. Property Owner did not lose anything because it

bought with knowledge of the dedication/fee requirements and paid a discounted purchase price and were being compensated for all 34 acres.

If Property Owner lost anything, it was the interim farming income because that was the only use.

The Valuation Exchange—Precondemnation DamagesThe Valuation Exchange—

Precondemnation Damages


Property Owner’s Position: Property Owner lost the ability to put the

Subject Property to its highest and best use because of the City’s activities as set forth in the Stipulation—property was unmarketable, unusable and undevelopable.

Property Owner’s Experts: Valued the loss of highest and best use for each year during the precondemnation damage period For each year in the 8+ year damage period,

determined the fair market value at highest and best use and applied a rate of return to that value to determine the loss of highest and best use.

It was a big number.

The Valuation Exchange—Precondemnation DamagesThe Valuation Exchange—

Precondemnation Damages


The Stipulation DisputesThe Stipulation Disputes


Excerpt From City Appraiser’s Appraisal Report:

Excerpt From City Appraiser’s Appraisal Report:

“The reported value is independent of any and all valuation agreements which may otherwise be in effect by and between the litigant parties in the above referenced matter and/or pursuant to the Stipulation as hereinabove referenced.”

Excerpt from AppraiserAppraisal Report


Real Estate in Distress Public Agencies in Distress Jury cognizant of the current economic

issues

The Economy in Crisis—2009

The Economy in Crisis—2009


In 2008, the case was transferred to the Civil Complex Panel.

Compensation case was tried by a different judge from the judge that signed the Stipulation.

“…this is not going to be a walkover..” “The first thing we do, let’s kill all the lawyers

[stipulations].”—William Shakespeare, Henry VI

The Trial Judge removed the causation set forth in the Stipulation therefore permitting a re-do of liability—the City was permitted to make any argument it wanted at trial.

The Trial CourtThe Trial Court


Jury Does Not See the Stipulation

Jury Does Not See the Stipulation


The Jury awards a testimony verdict for the Subject Property and nominal precondemnation damages measured by loss of farming income.

Jury AwardJury Award


Contrasting Case “B”Contrasting Case “B”


Similarities: Similar claims regarding precondemnation

damages to vacant land. In Case “B” the Court determined liability

—there was no Stipulation. The Case “B” Property Owner’s appraiser

used the same Stone methodology to value precondemnation damages.

Both cases were valuing the precondemnation damages during an appreciating market.



Yet the results differed: Case “B” obtained a near testimony

verdict for precondemnation damages.



Differences: Case “B” Property Owners owned the

property long before the project. The Case “B” Jury was able to see a

Liability Order. The Case “B” precondemnation

damage period was shorter for a smaller parcel of land, and thus smaller damage numbers.

The Case “B” Property Owners were not as wealthy.

Contrasting Case “B”—Why The Different Result?

Contrasting Case “B”—Why The Different Result?

patrick a. hennessey, esq. michael h. leifer, esq. palmieri, tyler, wiener, wilhelm & waldron...

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