PDR Development Corp. v. City of Santa Fe
| Decision Date | 16 June 1995 |
| Docket Number | No. 15470,15470 |
| Parties | PDR DEVELOPMENT CORPORATION, Defendant-Appellant, v. CITY OF SANTA FE, Plaintiff-Appellee. |
| Court | Court of Appeals of New Mexico |
PDR Corporation appeals an order denying its counterclaim for money damages on a theory of inverse condemnation. PDR's brief attacks the trial court's findings that the City of Santa Fe's actions did not cause its damages. Rather than focus on the narrow attack on the findings, we consider this case in broader perspective. In essence, PDR's contention is that it was entitled to damages in the form of lost profits for loss of contracts to sell the property resulting from the erroneous application of a zoning ordinance by the City. PDR makes this claim under either the takings or the damages provisions of Article II, Section 20 of the New Mexico Constitution. We hold that neither the takings provision nor the damages provision allows PDR to recover the damages it claims because lost profits is not the proper measure of damages for a temporary taking resulting from the erroneous application of a zoning ordinance. We also hold that, under the facts of this case, PDR was limited to the remedy of damages for a temporary taking of its real property under the traditional before and after rule used in condemnation cases. Because PDR did not offer any evidence of these damages, we hold that the trial court properly ruled that PDR did not sustain its burden of proving damages. Accordingly, we affirm.
PDR owned property on which condominiums were situated. It purchased the property in 1987 with a down payment of approximately $500,000 and the remainder of the purchase price ($4,400,000) financed in such a way that only interest would be due for two years and the principal would be due in a balloon payment in 1989. The property was in an "RM" (multiple family residential) district. At about the same time PDR purchased the property, the City was attempting to restrict businesses such as hotels in residential neighborhoods. PDR rented the units on a short-term basis, including by the day to transients. Unaware that PDR was using the property for short-term rental, the City enacted a zoning amendment which prohibited short-term rentals in RM-zoned districts. After the amendment, the City received complaints from PDR's neighbors that PDR was renting its units for overnight occupation. The City issued two cease and desist orders, in August and December 1988, but PDR continued its rental operation. PDR claimed that its operation did not fit the definition of a prohibited "all-suite hotel" under the zoning amendment.
On August 15, 1988, PDR executed a contract with a Texas developer to sell the property. That contract guaranteed PDR a payment of $2,000,000 and obligated the developer to pay off the balloon payment of $4,400,000, due in July 1989. It also allowed for the possibility of further profits as the property was developed. As a backup, PDR negotiated a similar contract with another party on August 25, 1988, but the backup contract did not provide for further profits. Both contracts were expressly contingent on the lawful use of the property for daily rentals. During negotiations to withdraw the first cease and desist order, the City was aware of the pending contracts for sale, but not of the details of the contracts.
In March 1989, the City filed for an injunction in order to stop PDR from using the property in violation of the zoning amendment. Prior to the date that the City filed its lawsuit, the Texas developer twice agreed to extend the contract closing date in order to allow PDR to resolve the zoning issue. Eventually, the developer withdrew his offer. The backup purchaser also withdrew its offer. Evidence presented by PDR indicated that, in addition to the zoning problems, the prospective buyers were unhappy with the negative publicity surrounding the continued rental operation by PDR. Ultimately, PDR was unable to make the July 1989 balloon payment and lost the property in foreclosure proceedings.
In November 1989, after the City filed for an injunction, PDR filed a first amended answer and counterclaim alleging that issuance of the cease and desist order amounted to a taking and PDR was entitled to damages for inverse condemnation. After proceedings not relevant to this appeal, the case went to trial and the trial court ruled against PDR on its inverse condemnation claim. On appeal, as it did at trial, PDR claims that the City's action in issuing the cease and desist orders and refusing to withdraw them amounted to a taking for which it is entitled to damages with respect to the lost contracts.
PDR argues that the City's actions amounted to a taking or damage to its contract rights. PDR contends that it is entitled to compensation of $2,000,000 for loss of the sales contracts. PDR arrives at this figure by subtracting the amount of the balloon payment due on the property from the total amount to be paid for the property as listed in the sales contracts. PDR concedes that it has been unable to find a case supporting its entitlement to such damages. We review the law governing takings, including those takings resulting from application of land-use regulation, both from New Mexico and other jurisdictions, to determine if PDR's claim has merit.
In cases involving the lawful application of a zoning ordinance, a taking results when the zoning change deprives the property owner of all beneficial use of the property. See Aragon & McCoy v. Albuquerque Nat'l Bank, 99 N.M. 420, 424, 659 P.2d 306, 310 (1983); Miller v. City of Albuquerque, 89 N.M. 503, 505, 554 P.2d 665, 667 (1976). In this case, the trial court determined that the application of the ordinance to PDR was unlawful, and the City has not filed a cross-appeal from that ruling. See Paiz v. State Farm Fire & Casualty Co., 118 N.M. 203, 210, 880 P.2d 300, 307 (1994). With respect to the unlawful application of a zoning ordinance, some courts again require removal of all beneficial use of the property in order for the action to be compensable. See Burlington Assembly of God Church v. Zoning Bd. of Adjustment, 247 N.J.Super. 285, 588 A.2d 1297, 1300-02 (Law Div.1990) (); cf. First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 316, 318, 107 S.Ct. 2378, 2386, 2387, 96 L.Ed.2d 250 (1987) (). Other courts hold that where a zoning ordinance is wrongfully applied and then withdrawn, a temporary taking occurs even where all beneficial use of the property was not removed by application of the ordinance. See Eide v. Sarasota County, 908 F.2d 716, 721 (11th Cir.1990), cert. denied, 498 U.S. 1120...
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