City of Brookings v. Mills

• Decision Date: 20 May 1987
• Docket Number: No. 15562,15562
• Parties: CITY OF BROOKINGS, a Municipal Corporation, Plaintiff and Appellant, v. Harvey E. MILLS and Mary Lou Mills, Defendants and Appellees. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 497

412 N.W.2d 497

CITY OF BROOKINGS, a Municipal Corporation, Plaintiff and Appellant, v. Harvey E. MILLS and Mary Lou Mills, Defendants and Appellees.

No. 15562.

Supreme Court of South Dakota.

Considered on Briefs May 20, 1987.

Decided Sept. 16, 1987.

Alan F. Glover of Denholm & Glover, Brookings, for plaintiff and appellant.

Richard J. Helsper of Erickson & Helsper, P.C., Brookings, for defendants and appellees.

SABERS, Justice.

The City of Brookings (City) appeals the trial court's decision of "de facto taking" and awarding delay damages. We reverse.

Facts

Harvey E. and Mary Lou Mills (Mills) purchased the subject property in 1963. This real estate, which consisted of approximately 10.9 acres, was located adjacent to City's municipal airport; 2.35 acres of which was included in an aviation easement that restricted its use as a safety zone for the airport. The property was zoned light industrial and Mills bought it for long-range commercial development. Mills planned to construct four industrial steel buildings on a speculative basis to offer to potential lessees.

With this plan in mind, Mills contacted the City Engineer in December 1976, to apply for a building permit. It was Mills' intention to begin construction in January of 1977. Noting the aviation easement, the City Engineer advised Mills to first obtain permission from the FAA. On December 2, 1976, Mills applied to the FAA for permission to build in the area of the easement. The FAA responded in late January of 1977, indicating its approval of the proposed development plan but also indicating that Mills' proposed construction might conflict with the City's plans to expand the airport.

Following receipt of the FAA permit, Mills returned to the City Engineer in February 1977, who informed him for the first time of the City's plans for airport expansion which targeted Mills' property for acquisition. Based on this conversation, Mills chose not to file the application because he believed the City intended to take the property which made his plans to develop it futile.

The City's consulting engineering firm submitted a proposed land use map for the airport expansion project to City's Planning Commission on June 21, 1977. Upon receipt, the City adopted the overall plan which included Mills' property for acquisition. In March of 1978, the consulting engineers submitted a completed airport master plan which City approved and submitted to the State Aeronautics Board and the FAA for approval. On September 5, 1978, the City adopted Resolution No. 1954 which authorized acceptance of the airport development aid grant from the federal government, thereby putting into place the necessary financing for the airport expansion project.

In December 1978, the City contracted with an appraiser to conduct appraisals of the land affected by the project and targeted for acquisition. The targeted area included Mills' property among its approximately seventeen or eighteen parcels of land for appraisal. In January 1979, the City received final approval for the project.

On February 8, 1979, the City gave Mills formal notice of its intent to acquire his property and advised him that the appraiser would be contacting him. On April 30, 1979, the appraiser submitted his appraisal of Mills' property to the City. He appraised the land at $6,300 per acre for 8.56 acres for a total of $54,000. This was a mistake as the appraiser was operating under the belief that Mills owned only 8.56 acres when he in fact owned 10.9 acres.

In September 1979, the City offered Mills $54,000 for the property. Mills did not inform the City until May of 1980 that the appraisal was erroneous on both the amount and computation of acreage. In August 1980, the City offered Mills $76,300 which valued the land at $7,000 per acre and included a 5% increase as an adjustment for appreciation and time.

In February of 1981, Mills rejected the City's offer and offered to settle for $100,000. He informed the City that if this proposal was not satisfactory, he would seek court action. In July 1981, Mills requested the City to either condemn his property or allow its development.

On July 28, 1981, the City initiated a condemnation action against Mills which sought to acquire his property for $76,300. Mills filed a counterclaim against the City alleging a "de facto taking" of his property which entitled him to an award of damages. The City moved for summary judgment on the counterclaim which was denied. The trial court bifurcated the proceedings which allowed the City to proceed with its condemnation action.

Following a jury trial on January 28-29, 1982, the jury awarded Mills the sum of $95,375 (or $8,750 per acre) for his property, from which he appealed. This court affirmed the jury verdict in a per curiam opinion. See City of Brookings v. Mills, 337 N.W.2d 181 (S.D.1983). The judgment has been satisfied.

Thereafter, the parties proceeded to litigate the counterclaim in a court trial on March 28, 1985. On September 9, 1986, the trial court entered findings, conclusions, and a judgment which awarded Mills $59,536 in damages for the City's de facto taking of his property prior to formal condemnation. The court concluded that the City effectively deprived Mills of the use of the property and failed to properly compensate him for such deprivation for a period of four and one-half years. The City appeals to this court.

City's Claims

The City claims that its conduct did not amount to a de facto taking of Mills' property and that the trial court erred in computing the delay damages.

A "DE FACTO TAKING"

Mills contends that he suffered numerous losses from the City's delay in excess of four years in condemning his 10.9 acres. These losses included: a decrease in land value, loss of the use and enjoyment of the property for its intended purpose, loss of the use of the money, and loss of income from the development of the property. The City contends that: it did not abuse its powers of eminent domain. Mills was never informed in February of 1977 that he could not file an application for a building permit, it was Mills' own business decision not to file, and that any delays were caused by the nature of the bureaucratic process rather than the City's conduct.

A landowner whose property is taken for public use, or damaged, is entitled to just compensation. S.D. Const. art. VI, Sec. 13. This section, which allows the landowner compensation whenever his property rights are damaged, expanded the traditional rule allowing compensation only when the property was physically taken in condemnation proceedings. Hurley v. State, 82 S.D. 156, 160-161, 143 N.W.2d 722, 725 (1966). Therefore, the concept of inverse condemnation provides landowners with compensation when the government takes private property without formal condemnation proceedings. 27 Am.Jur.2d Eminent Domain, Sec. 478 (1966).

The time that compensation is to be determined is the date of the taking or damaging, or the substantial interference with the owner's rights. Hurley v. State, 81 S.D. 318, 323, 134 N.W.2d 782, 784-785 (1965). ^* The measure of damages for the substantial impairment of the owner's rights is the difference between the market value of the property considered at its highest, best, and most profitable use immediately before and immediately after the destruction or impairment. Hurley, supra, 82 S.D. at 164, 143 N.W.2d at 726.

Although the concept of a "de facto taking" as justification for delay damages is one of first impression in South Dakota, both Pennsylvania and Michigan courts have considered this issue. The Pennsylvania courts have concentrated their inquiry on significant facts and the existence of exceptional circumstances. Under the Pennsylvania standard, the inquiry is:

1) Is condemnation inevitable?

2) Has the property suffered a substantial loss of ability to generate income and substantial loss of marketability?

3) Was the loss in income generation and marketability a proximate result of the government's actions?

4) Is the landowner facing a threatened loss of the property due to the property's inability to generate sufficient income to pay taxes and/or operating expenses?

An affirmative answer to the fourth question is not required in order to find that a taking has occurred, but the existence of such a threatened loss is a significant fact indicating a taking. The burden of proof is on the claimant to establish the elements of a de facto taking. Gamma Swim Club, Inc. v. Com., Dept. of Transp., 95 Pa.Cmwlth. 167, 505 A.2d 342 (1986); Visco v. Com., Dept. of Transp., 92 Pa.Cmwlth. 102, 498 A.2d 984 (1985); In re Condemnation of Premises, Etc., 68 Pa.Cmwlth. 506, 449 A.2d 820 (1982); Com., Dept. of Transp. v. Lawton, 50 Pa.Cmwlth. 144, 412 A.2d 214 (1980); Petition of Cornell Industrial Electric, Inc., 19 Pa.Cmwlth. 599, 338 A.2d 752 (1975); Conroy-Prugh Glass Co. v. Commonwealth, Dept. of Transp., 456 Pa. 384, 321 A.2d 598 (1974).

The Michigan courts have framed the test somewhat differently, but the key elements of proof are substantially the same:

[A] plaintiff must establish (1) 'that the government's actions were a substantial cause of the decline of his property's value', and (2) 'that the government abused its legitimate powers in affirmative actions directly aimed at the plaintiff's property'. (citation omitted) (emphasis added.)

Attorney General v. Ankersen, 148 Mich.App. 524, 561, 385 N.W.2d 658, 675 (1986).

Both "tests" incorporate the general elements of proof of governmental action, causation and result.

Governmental Action

It is well settled in both Michigan and Pennsylvania that legitimate action by government pursuant to public improvements, absent exceptional circumstances, is insufficient to establish a de facto taking.

Recognizing the need to balance the flexibility of planning agencies with that of the property owner, our courts have concluded that the recording of final plans,...