Fourth-Quarter 2015 Updates: Broadway Boulevard Widening Project and Relocation Benefits

Moving as a result of eminent domain?

As the Broadway Boulevard widening project gets underway, relocation agents working for the City of Tucson have begun to contact property owners along the path of the project. The Broadway widening has languished for many years but, in spite of that, once the relocation agents contact property owners, things start to move towards property acquisition fairly quickly. What should a property owner expect through the relocation process, and how can a property owner ensure he or she receives all of the money to which he or she is entitled through the eminent domain process?

When a government agency like the City of Tucson takes property through eminent domain and the property owner will no longer be able to live or do business at a taken property after the construction of the public improvement, the property owner is generally entitled to two pots of money from the government agency responsible for the taking:

Reach out your hand if your pots be empty / If your pots are full, may they be again.

Pot A is "Just Compensation" - the amount of money the Arizona Constitution guarantees a property owner in exchange for the real estate taken from him or her.

Pot B is "Relocation Benefits," which is an amount designed to pay for moving the personal property and reestablishing the business or residence of the property owner at a new property the property owner purchases with the funds from Pot A (or other funds the property owner wishes to spend).

If the City of Tucson is taking your property for the Broadway project or any other public improvement, you are certainly entitled to Pot A, and you may be entitled to Pot B funds as well. My practice has traditionally focused exclusively on extracting the most Pot A - Just Compensation funds I could for a property-owner client. Clients usually choose to hire me to seek the most Just Compensation possible and sort out Pot B - Relocation Benefits on their own.

Recently, a shift has occurred, and more clients are asking for help in securing their Relocation Benefits. The reason is those clients believe the relocation agents working for the City of Tucson are not doing a good job guiding the property-owner clients through the relocation process and, instead, seek only to maximize savings to the City of Tucson rather than fairly distributing the Relocation Benefits these clients deserve.

One example of this unfairness is the rules the City of Tucson and its relocation agents use to determine a property owner's eligibility for Relocation Benefits. There are three sources of a property owner's entitlement to Relocation Benefits: a federal source applicable to federal projects and state projects receiving federal funds, a state source applicable to Arizona Department of Transportation Projects, and a state source applicable to all other state- and local-level projects. This last source of Relocation Benefits requires the City of Tucson to establish its own rules governing the distribution of Relocation Benefits, but the City of Tucson has not done so. Instead, the relocation agents representing the City of Tucson use the oftentimes restrictive federal source and the guidelines pertaining to it. This confusion has resulted in clients reporting unfair and bizarre treatment from relocation agents who do not seem to have the appropriate guidance from the city. 

If you believe the City of Tucson or its hired relocation agents are not treating you fairly, call me for a free consultation. I would be more than happy to review the amounts to which you may be entitled and discuss a fair fee to seek the recovery of those amounts. 

March-April 2015 Updates - Staying Up to Date as an Eminent Domain Lawyer

Finding time to accumulate 15 hours of continuing legal education credit is sometimes harder than it sounds. Many CLE courses are two or three hours only or held in inconvenient locations. Add in the basic aridity common to all work-related seminars, and it is no wonder most lawyers are not overenthusiastic regarding this yearly requirement. 

Fortunately, this need not be so for condemnation lawyers. We have been fortunate to have dedicated eminent domain lawyers throughout the state who are willing to put on a six-and-a-half hour conference packed with focused eminent-domain-specific content. This is known as the Condemnation Summit, held twice a year.

I will be attending the Condemnation Summit on May 15th to make sure I stay on top of the developing trends in eminent domain law. Since it is a conference for right-of-way professionals and appraisers as well as attorneys, it is always a great place to gain a perspective on how all aspects of government takings work. 

The Importance of Expert Witnesses and Lawyers Who Know How to Use Them in Eminent Domain Litigation

A recently decided California case illustrates the vital importance of having the right expert witnesses and lawyers who know how to use them to support a property owner in condemnation litigation. The property owner in San Diego Gas & Electric Company v. Schmidt received a jury award of $8,034,000 - over eleven times the $712,000 the utility company claimed was appropriate.

San Diego Gas & Electric (SDG&E) was taking a portion of the Schmidts' property to build a transmission line. The taking would split the property, which was vacant land, down the middle. SDG&E's appraiser felt "residential development or habitat mitigation [open space purchasable as an offset to development in other areas]" was the highest and best use of the vacant property. The Schmidts presented a convincing case the highest and best use of the property would be for eventual aggregate mining (aggregate mining is the mining of construction materials like sand a gravel).

View fullsize

The impressive element of the case, and the reason it is noteworthy, is the synergy that the Schmidts' lawyers achieved between two experts - one mining expert, Mr. Warren Coalson (his actual name), and Mr. Orell Anderson, an experienced mining appraiser. It takes some doing to convince a jury that the value of vacant property should reflect its highest-and-best-hypothetical use as a mining operation, but that is exactly what Coalson, Anderson, and the Schmidts' lawyers did.

How did they do it?

The first and most obvious hurdle Schmidt had to clear is one of the oldest tricks in the condemnor's playbook, the "You Could Never Use That Property For Anything" defense: SDG&E claimed county authorities would never permit a mining operation on the Schmidt property, thus the mining value of the property had already been lost long ago when the county instituted mining permit regulations in the 1980s. See? Your property has no value. The government took it away long ago when it decided you could never use your property for anything.

Pima County is notorious for using this tactic - particularly when it comes to the numerous floodplain regulations and prohibitions on construction within watercourses. The City of Tucson likes to use their Major Streets and Routes Plan (which sometimes places desired-future-roadway widths deep into private property) to contend the City already owns most of the frontage around town anyway, so why should the City have to pay for the mere formality of transferring title to itself?

Fortunately, the Schmidts' lawyers were prepared. Coalson had completed a market study of construction aggregates and concluded supply did not match anticipated future demand, making the county likely to permit more mining operations in the near future. Anderson conducted an empirical study of mining permitting in the county and found mining operations had been permitted at a rate of 71.4%, and therefore concluded the likelihood of the Schmidt property being permitted for mining was reasonably probable. First hurdle: cleared. 

The second hurdle Schmidt had to clear was properly valuing a vacant piece of property at its highest-and-best use as a mining operation when few comparable sales of such property existed. Appraisers use three approaches to valuation: the comparable sales approach (find other properties sold recently similar to the subject property and use those sales prices to extrapolate the subject property's value), the cost approach (vacant land value + depreciated cost to reconstruct improvements = subject property's value), and the income approach (present value of income stream realizable from subject property = subject property's value). Since the comparable sales and cost approaches were not feasible, Anderson conducted an income approach.

Using the income approach in eminent domain cases is tricky. First, in California and Arizona, the appraiser should show that the comparable sales approach is not viable for the subject property. Anderson did this. Then the appraiser must avoid two traps the courts prohibit: using estimated business profits as a proxy for income and extracting the value of the land from the profits from a hypothetical sale of the hypothetically developed property. The income approach must reflect value as extrapolated from the income derived from the real estate, not the income derived from the business on the real estate. 

Presenting a quality opinion of value using the income approach is where the synergy between Coalson and Anderson shone through. First, Coalson testified that mining companies pay landowners a royalty rate on the materials the mining company extracts, which Coalson stated would be 15 percent for the Schmidt property. This was based on Coalson's supply/demand analysis. Coalson also provided a CALTRANS-sponsored study for which Coalson was on the technical review panel that stated the future price for the mined materials would be $15 per ton.

View fullsize

Unlock large jury verdicts with the right expert witnesses and lawyer.

Anderson reduced Coalson's $15 per ton rate to $11 per ton to reflect the uncertainty of securing the proper permits. Anderson then took the 15% royalty rate, $11 per ton, and 2 million ton per year capacity of the Schmidt property and determined the Schmidt property aggregate mine would result in a $3.3 million per year income stream to the property owner. Then, to arrive at a final value, Anderson used an 8.5% discount rate (reduced yet again to account for more uncertainty with the permitting process) to determine the present value of a $3.3 million per year income stream. The final value of the property, or, in other words, what a person would pay for a property with a potential income stream of $3.3 million per year, was $10,359,000. 

The jury believed Coalson and Anderson and found SDG&E must pay $8,034,000 of the $10,359,000 for taking the Schmidts' property. Second hurdle: cleared.

Getting the valuation problem right in an eminent domain case is vital. If you have the right expert witnesses, even the thorniest valuation issues can go very smoothly. However, if your lawyer does not understand what is required or if the expert witness presentation is missing a key piece, the jury can struggle to find its path to a large verdict. San Diego Gas & Electric Company v. Schmidt is a good reminder to check to be sure all of the expert testimony you will present forms a coherent whole that makes it easy for the jury to justify a large award. 

May 2014 Updates

The Arizona Supreme Court handed private property owners a victory in City of Phoenix v. Garretson:

“Consistent with our prior cases, we hold that a property owner is entitled to compensation if the government either completely eliminates or substantially impairs the owner’s access to an abutting road and thereby causes the property’s fair market value to decrease. As noted above, however, a landowner who claims or establishes only substantial impairment is not entitled to compensation unless the remaining access is unreasonably circuitous.”

— City of Phoenix v. Garretson, Arizona Supreme Court

View fullsize

The Arizona Supreme Court

Arizona law is now crystal clear regarding the complete destruction of access. Before Garretson, lawyers for condemnors had argued that complete destruction of one access point was non-compensable if the property retained other, non-circuitous, and reasonable access to the road network. Garretson prevents condemning authorities from eliminating one point of access completely for a property to a certain road without paying for any devaluation that occurs to the property as a result. 

The facts of Garretson were first related in this space here. And, as suggested here, the Supreme Court essentially affirmed the Court of Appeals, albeit while substituting a Supreme Court opinion for the written opinion of the lower court.

View fullsize

Government lawyers are never nice to anybody.

Attribution: http://xkcd.com/1332/ Under Creative Commons Attribution NonCommercial 2.5 License 

There are three great things about the ruling. First, superior courts, where trial of these cases occurs, now have a clear statement of the law upon which they can base their rulings.

Second, private property owners are entitled to compensation for access restrictions, which most people intuitively perceive as decreasing the value of real estate. (Whether or not this perception is true is sure to be hotly contested.)

Finally, private property owners now are able to bring into being the parade of horribles surely elucidated in the briefs the city and those aligned with the city submitted to the Supreme Court. The fear of the city and those aligned with it, expressed in those briefs, was surely that lawyers defending property owners would push to extend a favorable ruling to try to capture compensation for every destruction of access in a way that would threaten the very existence of a free society as we know it.

This is known as a "slippery slope" argument (see right), and the city and its minions were, to some extent, correct. For instance, I believe this ruling gives rise to a claim for just compensation when temporary complete destruction of access occurs during construction of improvements even if the access will be re-opened once construction is complete. Temporary complete destruction of access occurs frequently. 

Congratulations again to Dale Zeitlin on giving us a great case with which to go forward once more unto the breach. 

January 2014 Updates - Unpacking Arizona Supreme Court Discretionary Review

The Arizona Supreme Court has granted the petition to review the City of Phoenix v. Garretson decision of the Arizona Court of Appeals, Division One. Southern Arizona Public Works discussed the appellate decision here. The supreme court will hear oral argument in the case on January 22, 2014.

What does the supreme court's decision mean? In Arizona, civil litigants generally do not have an absolute right to supreme court review. The Supreme Court of Arizona may exercise its discretion to grant a petition for review, but does so infrequently in civil cases. In the court's 2012 fiscal year (July 1, 2012, through July 1, 2013), it received 313 civil petitions for review and granted only 12 petitions, or 3.8%.

The conclusion most lawyers draw from the discretionary nature of supreme court review and the court's limited exercise of it is the court grants petitions for review primarily when it wishes to correct an error at the appellate level, which would bode unwell for the Garretson decision and those who support the decision's reasoning and outcome. However, most lawyers would admit the supreme court sometimes grants review if it wishes to clarify the law by affirming the reasoning of the appellate court and elevating that reasoning into a supreme court opinion. 

How likely is it that the Arizona Supreme Court granted review in Garretson simply to affirm the court of appeals?

The answer is: unlikely, but more likely than you might think, depending on how you interpret the data. In the last 16 years, the Arizona Supreme Court has granted 247 petitions to review civil cases and has affirmed the appellate court only 36 times, or 14.5% of the time. Here is a breakdown:

Arizona Supreme Court Petition for Review Affirmances 1998-2013

However, during the four full years of Rebecca White Berch's term as Chief Justice, the court affirmed 30-40% of the civil cases the court elected to review. This graph demonstrates the trend:

View fullsize

Arizona Supreme Court Petition for Review Results 1998-2013

The trend line demonstrates a change in attitude over time from the Zlaket court to the Berch court. The reasons for this trend are best left to (probably pointless -- but amusing) speculation, but there is a clear, data-based suggestion the current court looks more favorably upon elevating appellate decisions to become the law of the land. Further, the chances of affirmance in Garretson may be more likely than this analysis shows because this data does not account for partial affirmances. A case partially vacated with regards to, say an award of attorneys' fees, was not coded as "affirmed," even though the court may have affirmed the salient portion of the appellate court's analysis.

It is correct to say the supreme court's decision to grant the petition for review in Garretson is a victory for the petitioner. It would be incorrect to assume, however, the outcome in the supreme court is assured. Good luck to the lawyers arguing the case on January 22nd - Mr. Ayers for the City of Phoenix and Mr. Zeitlin for Garretson. But a little more luck to Mr. Zeitlin. 

Does a Commitment to Keep Your Business Open During Construction Change the Amount of Compensation You are Owed for a Temporary Construction Easement?

View fullsize

Some government agencies will pledge to do whatever it takes to make sure your business stays open while the government is using your property to construct its new public facility, like a road or utility lines. In some instances, the government may go so far as to create an alternate access plan or state in bold on its construction plans, “Access To Remain Open During Construction.”

These assurances do not change the legal rights to use your property that the government takes from you by condemning a temporary construction easement. In condemning an easement over your property, the government takes from you the legal right to use your property in the manner the easement states, and the government cannot lessen the amount of compensation you are owed by promising to use the easement a certain, limited way. In Arizona, this rule is stated in Phoenix Title & Trust Co. v. Arizona Public Serv. Co.:

“When property is acquired by virtue of the power of eminent domain, the compensation of the owner is to be estimated by the actual legal rights acquired by the condemnor and not by the use that he may make of the right.”

— Phoenix Title & Trust Co. v. Arizona Public Serv. Co., 445 P. 2d 169, 8 Ariz. App. 221, 226 (1968).

Property owners should use this to their advantage. The best way to resolve a legal dispute is by agreement, and often times businesses would rather have some say in how the government uses their property than a few more dollars in compensation. Using this principle as leverage could result in an agreement with the city or county to redesign its project and temporary construction easement to lessen the burden on your business.

View fullsize

Keeping your business open during construction is important, but it should not change the amount you are owed for the taking of a temporary construction easement. 

Arizona Clarifies Just Compensation Owed in Eminent Domain When Owner Loses Driveway Access to Public Street

There is an update to this post here. 

In City of Phoenix v. Garretson, the Arizona Court of Appeals has clarified the law regarding the just compensation a condemnor must pay for restricting a property owner's access to an adjoining street as a result of taking a portion of the property through eminent domain.  

The decision discusses the long, tortuous route the Arizona courts have taken to finally arrive at a very simple rule:

“The government may not completely remove or substantially impair a property’s existing access to an abutting roadway without providing just compensation to the owner. ”

— City of Phoenix v. Garretson

The Garretson property is located in downtown Phoenix, and the City of Phoenix took a temporary construction easement along the north boundary of the property to construct the Phoenix METRO light rail. Garretson claimed that he was owed money because, in constructing the light rail, the City blocked Garretson's driveways onto East Jefferson Street. 

View fullsize

The Garretson property in downtown Phoenix.

The City off Phoenix raised arguments that previous Arizona cases have suggested that a property owner is owed no money for loss of access unless the remaining access is unreasonably circuitous. Arizona has also suggested destroying such access is allowed pursuant to the City's police powers and therefore noncompensable. 

The Court of Appeals dispensed with the City's arguments, which is a victory for private property owners. Now there is no ambiguity in Arizona law regarding the circumstances in which a condemning authority must compensate a property owner for restricting access to a public street. Congratulations to Mr. Dale Zeitlin, of Zeitlin & Zeitlin, P.C., who represented Mr. Garretson.