Millcreek Tp. v. N.E.A. Cross Co.

• Decision Date: 22 March 1993
• Citation: 152 Pa.Cmwlth. 576,620 A.2d 558
• Parties: MILLCREEK TOWNSHIP, Appellant, v. N.E.A. CROSS COMPANY and Vineyard Oil and Gas Company, Appellees.
• Court: Pennsylvania Commonwealth Court

Page 558

620 A.2d 558

152 Pa.Cmwlth. 576

MILLCREEK TOWNSHIP, Appellant, v. N.E.A. CROSS COMPANY and Vineyard Oil and Gas Company, Appellees.

Commonwealth Court of Pennsylvania.

Argued Feb. 6, 1992.

Decided Jan. 12, 1993.

Reargument Denied March 22, 1993.

Donald E. Wright, for appellant.

J. Bradford McIlvain, for appellees.

Before DOYLE and KELLEY, JJ., and BARRY, Senior Judge.

KELLEY, Judge.

Before the court is the appeal of Millcreek Township from the dismissal of its preliminary objections by the Court of Common Pleas of Erie County (trial court) in an inverse condemnation proceeding.

N.E.A. Cross Company (Cross) and Vineyard Oil and Gas Company (Vineyard) negotiated several leases to explore for natural gas and develop wells in Millcreek Township. With respect to the properties which are the subject of this action, Cross and Vineyard had not yet developed wells as of February 17, 1986. These undeveloped parcels are located in agricultural or residential zoning districts.

On February 17, 1986, the township enacted ordinance 86-5, which restricts oil and gas wells to property zoned for light or heavy industry. On October 12, 1989, Cross and Vineyard filed in the trial court a petition for determination of de facto taking and appointment of viewers. The petition alleged that the ordinance constituted a de facto taking "of all right, title and interest which Cross and Vineyard held in the undrilled leaseholds." The petition further alleged that Cross had suffered damages in excess of $4,000,000 and that Vineyard had suffered damages in excess of $10,000,000 because they were unable to develop wells on the subject properties. The township filed preliminary objections to the petition which were dismissed by the trial court. In so doing, the trial court stated that Cross and Vineyard's petition was not filed under the Eminent Domain Code ¹ (Code) and that the trial court considered the action to be a civil action for damages. The trial court therefore did not rule on whether a de facto taking had occurred. The township has appealed. ²

Preliminarily, we must note that the trial court erred in stating that this is not an action under the Eminent Domain Code. The filing of a petition for the appointment of viewers, when there has been no declaration of taking filed by the condemnor, is specifically authorized by section 502(e) of the Code, 26 P.S. § 1-502(e). Both parties agree that the trial court erred in this regard, and the trial court opinion is of limited value in our review of this appeal because of this error.

The township's first argument is that the trial court erred in dismissing its preliminary objections without conducting an evidentiary hearing. Much of our case law appears to indicate that an evidentiary hearing is required before preliminary objections to a petition for appointment of viewers are dismissed ³ and, if we accept this argument, a remand would be in order to allow the trial court to conduct such a hearing. In addressing this issue we must examine the relevant sections of the Code and the caselaw, as well as the role of the trial court and the role of preliminary objections in eminent domain proceedings.

When a petition alleging a de facto taking is filed, the trial court must rule on the legal question of whether a de facto taking has occurred. If the court determines that a taking has occurred the case is then sent to a board of viewers to determine damages. See Petition of Ramsey (Ramsey II), 31 Pa.Commonwealth Ct. 182, 375 A.2d 886 (1977). Preliminary objections are the proper response to a petition for appointment of viewers pursuant to section 504 of the Eminent Domain Code, 26 P.S. § 1-504. The last sentence of section 504 states, "If an issue of fact is raised, evidence may be taken by deposition or otherwise as the court shall direct."

By the plain language of section 504, a trial court needs to take evidence only if one or more issues of fact are raised the resolution of which are necessary to ruling on the threshold question of whether a de facto taking has occurred. This court has in fact so held on many occasions. ⁴ In Petition of Ramsey (Ramsey I), 20 Pa.Commonwealth Ct. 207, 342 A.2d 124 (1975), this court stated:

[I]f a preliminary objection in the nature of a demurrer was filed, the lower court must first decide whether as a matter of law the averments of the petition, taken as true, are sufficient to state a cause of action of a de facto taking. If not, the preliminary objections must be sustained and the petition dismissed or possibly allow the petitioner to amend his pleading. If the averments, taken as true, might establish a de facto taking, the lower court must take evidence by deposition or otherwise so that a judicial determination might be made. If the averments on their face establish a de facto taking, then the preliminary objections must be dismissed as has happened in the case at bar.

Id. at 210, 342 A.2d at 126. Stated another way, if the preliminary objections raise an issue of fact, the resolution of which is necessary for determining whether a de facto taking has occurred, the court must hold an evidentiary hearing. If the preliminary objections do not raise any such issues of fact, the trial court must simply examine the petition and sustain the preliminary objections if the averments of the petition are not sufficient to establish a de facto taking, or dismiss the preliminary objections if the averments do establish a de facto taking.

Of course, the above discussion relates to preliminary objections which are in the nature of a demurrer. The preliminary objections may raise other legal issues by which the trial court may be able to dispose of a case without taking evidence even though there are issues of fact relating to whether a de facto taking occurred. ⁵

It appears that there is a conflict between the cases listed in fn. 3 which state that an evidentiary hearing must be held before preliminary objections to a petition for appointment of viewers are dismissed and those cases listed in fn. 4 which state that a hearing must be held only if there is an issue of fact. However, in the cases listed in fn. 3 stating that an evidentiary hearing must be held before preliminary objections are dismissed, the citations of authority for that proposition can all be traced back to earlier cases such as Ramsey I in which the more complete discussion of the role of the trial court is set out. In each of those cases listed in fn. 3 there were indeed issues of fact existing which necessitated a remand. Those cases do not purport to overrule Ramsey I or any similar case, and the recent statement in Stein of the more complete standard confirms that it remains the law. Our conclusion, therefore, is that we need not remand this matter unless necessary to resolve one or more issues of fact relating to whether a de facto taking occurred. We therefore must examine the rest of the township's arguments to see if such an issue exists.

The township argues that Cross and Vineyard do not have standing to bring a condemnation action because they let their leases lapse before filing their petition. ⁶ The township cites cases involving displacement damages ⁷ which state that once a leaseholder has let his lease terminate, he cannot have the status of a condemnee. Fisher v. Pittsburgh Public Parking Authority, 433 Pa. 113, 248 A.2d 849 (1969); Redevelopment Authority, Union County v. Property in West Milton, 101 Pa.Commonwealth Ct. 634, 517 A.2d 210 (1986); Hindsley v. Township of Lower Merion, 25 Pa.Commonwealth Ct. 455, 360 A.2d 297 (1976). Cross and Vineyard respond by stating that their leases were valid as of the date of enactment of the ordinance, which is the date the alleged taking occurred, and that the cases cited by the township concern leases which expired before the condemnation.

We agree with Cross and Vineyard that the cited cases are not applicable. In those cases the courts determined not that the tenants had no standing, but that they were not entitled to displacement damages because the tenants were not forced from the premises before the expiration of their leases. In the present case, Cross and Vineyard are alleging that the township's enactment of the ordinance took their leasehold interests away from them at the moment of enactment because they were thereafter prohibited from drilling wells on the properties. Because the alleged harm took place before the expiration of the leases, Cross and Vineyard have standing.

The main issue in this case is, of course, whether a de facto taking has occurred. A leasehold interest is, in fact, a property interest which may not be condemned for a public use without just compensation. Graham Realty Company Appeal, 67 Pa.Commonwealth Ct. 318, 447 A.2d 342 (1982). However, just compensation for the total taking of a leasehold interest are limited to "bonus value" damages, i.e., the difference between the fair rental value of the leased premises and rent actually reserved in the lease. Id. In Graham we stated:

[I]f the fair rental value at the time of the taking is greater than the rent being paid by the lessee, then the lessee is receiving a "bonus" under the terms of his lease. This "bonus", projected over the remaining term of the lease and discounted to its present worth, constitutes the damages which the lessee is entitled to recover.

Id. at 322, 447 A.2d at 344-45. Thus, if there is a taking, Cross and Vineyard are entitled to the difference between the rental payments made from the time of the taking until the leases expired and what Cross and Vineyard would had to have paid for similar leasehold interests during that period. Cross and Vineyard are certainly not entitled to the millions of dollars in lost profits which they seek.

The fact that a leasehold interest is a property interest which may be condemned does not mean that we can conclude as a matter...