City of Albuquerque v. SMP Props., LLC

• Decision Date: 25 February 2021
• Docket Number: No. S-1-SC-37343,S-1-SC-37343
• Parties: CITY OF ALBUQUERQUE, A municipal corporation, Petitioner-Petitioner, v. SMP PROPERTIES, LLC, and R. Michael Pack, Respondents-Respondents, and Modern Woodmen of America; Saia Motor Freight Line, LLC; United Parcel Service, Inc.; County of Bernalillo; Taxation and Revenue Department for the State of New Mexico; and Any and All Claimants for the Property Involved, Respondents.
• Court: New Mexico Supreme Court

483 P.3d 566

CITY OF ALBUQUERQUE, A municipal corporation, Petitioner-Petitioner,

v. SMP PROPERTIES, LLC, and R. Michael Pack, Respondents-Respondents,andModern Woodmen of America; Saia Motor Freight Line, LLC; United Parcel Service, Inc.; County of Bernalillo; Taxation and Revenue Department for the State of New Mexico; and Any and All Claimants for the Property Involved, Respondents.

No. S-1-SC-37343

Supreme Court of New Mexico.

Filing Date: February 25, 2021

Esteban A. Aguilar Jr., City Attorney, Adam Leuschel, Assistant City Attorney, John E. DuBois, Assistant City Attorney, Albuquerque, NM, for Petitioner.

Dubois, Cooksey & Bischoff, P.A., William J. Cooksey, George A. Dubois, Albuquerque, NM, for Respondents.

THOMSON, Justice.

{1} As part of a project to construct a new road along the North Diversion Channel, the City of Albuquerque (Albuquerque) initiated a condemnation proceeding to acquire a thirty-foot-wide strip of land across a 9.859-acre property (Property) owned by SMP Properties, LLC, whose managing member is R. Michael Pack (collectively, SMP). The district court granted Albuquerque entry and ordered the distribution of $143,850 to SMP as "just compensation" for the condemned property.

{2} SMP asserted that it did not receive full compensation because, prior to initiating the condemnation action, Albuquerque directly communicated its intent to condemn a portion of the Property to one of SMP's tenants, SAIA Motor Freight Line, LLC (SAIA). Hearing of Albuquerque's intent to condemn, SAIA apparently decided not to renew its lease before Albuquerque filed the contemplated condemnation action, determining that the condemnation would disrupt its operation and use of the portion of the Property it leased. Based on Albuquerque's precondemnation communications with SAIA and SAIA's subsequent failure to renew its lease, SMP asserted an inverse condemnation claim against Albuquerque seeking consequential damages, including lost rental income and devaluation of the Property adjacent to the thirty-foot wide strip that Albuquerque condemned. Albuquerque moved for partial summary judgment on SMP's "claims for consequential damages relating to the loss of potential tenant leases." The district court granted Albuquerque summary judgment and concluded that Albuquerque's precondemnation activity did not constitute "substantial[ ] interfere[nce] with the landowner's use and enjoyment of the [P]roperty," and therefore, no taking (in the form of an inverse condemnation) occurred.

{3} The Court of Appeals reversed the district court, determining that there were disputed issues of material fact concerning (1) whether Albuquerque's precondemnation activity constituted substantial interference and (2) whether the "loss of the SAIA lease [could] be included in the calculation of loss in market value," which is to say whether the loss of the lease was attributable to a taking. City of Albuquerque v. SMP Properties, LLC , 2019-NMCA-004, ¶¶ 28-29, 40, 433 P.3d 336. Although we do not adopt the reasoning of the Court of Appeals, we nonetheless affirm the reversal of the grant of partial summary judgment.

I. BACKGROUND

{4} SMP leased its Property on the north side of Albuquerque to two tenants. Both tenants operate freight truck terminals out of a single building on the Property. A total of sixty-five terminal bay doors operate on the Property. SAIA leased and operated twenty-nine of the sixty-five terminal doors from 2003 until it terminated its lease.

{5} SAIA entered into its original lease with SMP in March 2003 and subsequently exercised two three-year options to extend the lease. Because of the two extensions, the lease was set to expire on February 28, 2012. Between 2009 and 2010, SAIA sought and received permission to install two fuel tanks on its leased portion of the Property at its own expense. SAIA had a company policy that it would not install fuel tanks at locations unless it intended to remain there as a tenant for a minimum of eight years after installation, ostensibly to justify the $180,000 cost of installation.

{6} As a new term or extension date approached, SAIA and SMP's custom was to negotiate any desired changes to the lease terms. At the close of negotiations, SAIA would draft a letter documenting any changes to the lease and send it to SMP. SMP would then ratify and return the letter to SAIA. In continuance of that custom, in December 2011, the last quarter of the last year of the second lease extension period, SAIA's property manager told SMP that SAIA wanted to extend the lease for three more years, with additional options to renew or extend. SAIA committed to producing and delivering a letter concerning the terms to SMP.

{7} However, after these negotiations began but prior to SMP's receipt of the expected letter from SAIA, Albuquerque's right-of-way coordinator came to the Property and discussed, with an SAIA employee, the North Diversion Channel Road Project and the intended condemnation of the strip of land across the Property. SMP was not aware of the intended condemnation when Albuquerque's right-of-way coordinator visited with the employee of SAIA.

{8} Through that conversation with the Albuquerque employee, SAIA learned that Albuquerque's intended partial acquisition of the Property would require the removal of the fuel tanks SAIA had installed. The removal of these tanks would cost SAIA approximately $50,000 to $60,000. In addition, the partial taking would also likely prevent SAIA from fully utilizing four of its leased terminal doors. Although SMP sent a letter to SAIA, SAIA ultimately did not send a signed copy back to SMP to enter into a new lease term. Instead, SAIA remained as a holdover tenant at the expiration of the lease, finally terminating its lease on March 30, 2012, and vacating the Property on April 30, 2012. SMP did not know of Albuquerque's intent to acquire part of the Property until SAIA decided to terminate its lease. More than a year after the conversation between the right-of-way coordinator and the SAIA employee, Albuquerque filed a complaint for condemnation. See NMSA 1978, § 42-2-1 (1959) (providing for a "special [alternative condemnation] procedure whereby the state can enter into possession at the inception of the proceeding").

{9} As part of a special statutory procedure in the district court, Albuquerque requested possession of the condemned portion of the Property at the inception of the proceeding and deposited $143,850 as "just compensation" for the condemnation. See NMSA 1978, § 42-2-6(A) (1966) (requiring the "filing of the surety bond and deposit of money with the court" if a preliminary order of entry is sought). The district court granted Albuquerque a preliminary order of entry and then a permanent right of entry and ordered the disbursement of "the amount of $143,850.00 and any accrued interest" to SMP. SMP was permitted to amend its response to Albuquerque's complaint to add a claim for inverse condemnation alleging that Albuquerque did not provide just compensation for the damage to the Property based on Albuquerque's taking of a portion of the Property. SMP's inverse condemnation claim focused on Albuquerque's precondemnation activity and asserted that the lost rental payments should be considered in calculating just compensation.

{10} Albuquerque filed a motion for partial summary judgment and argued that (1) its precondemnation activities did not "substantially interfere" with Landowner's use of the Property, and therefore there was no "inverse condemnation claim"; and (2) SAIA's lease renewal is not compensable. The district court granted Albuquerque summary judgment on the inverse condemnation claim based on these two arguments.

{11} The Court of Appeals reversed the grant of summary judgment and remanded to allow SMP to prove to a jury "(1) that there was an inverse condemnation under the requirements of [ Santa Fe Pacific Trust v. City of Albuquerque , 2014-NMCA-093, 335 P.3d 232 ]; (2) the date of the ‘taking’; and (3) damages." SMP Properties , 2019-NMCA-004, ¶¶ 28-29, 40-41, 433 P.3d 336. We granted certiorari to review the issues presented. We affirm the reversal of summary judgment and clarify why SMP survives dismissal as a matter of law.

II. DISCUSSION

{12} The proper measure of damages in "a partial taking" is "the difference between the fair market value of the entire property immediately before the taking and the fair market value of the property remaining immediately after the taking." NMSA 1978, § 42A-1-26 (1981) ; Primetime Hospitality, Inc. v. City of Albuquerque , 2009-NMSC-011, ¶ 15, 146 N.M. 1, 206 P.3d 112. However, as SMP points out, this is not simply about a partial physical taking (of a thirty-foot-wide strip of land) and instead must be "broadly" conceptualized within "the range of possible temporary takings scenarios." 2009-NMSC-011, ¶¶ 15, 18, 146 N.M. 1, 206 P.3d 112 (emphasizing avoidance of "attempts to create a measure to be used in all temporary takings cases" (internal quotation marks and citation omitted)). Thus, whether a taking occurred and the proper measure of damages may be more case-specific. See id. ¶¶ 16-21.

{13} The Court of Appeals determined that this case was best conceptualized as a partial taking where it is proper to determine the fair market value "early" on a date prior to the date of entry. SMP Properties , 2019-NMCA-004, ¶¶ 28-29, 433 P.3d 336. However, given the circumstances and procedural history, this case could also be conceptualized as a temporary partial taking (when SAIA decided to terminate its lease and vacated the Property) and a subsequent partial physical taking (when Albuquerque finally filed a condemnation action). While SMP was compensated for the latter, we must decide if it is entitled to compensation for the former. As this Court has previously observed, a "fundamental justification for inverse condemnation liability is that the public entity, acting in furtherance of public...