Post No. 2874 Vfw. v. Redevelopment Auth.

• Decision Date: 17 July 2009
• Docket Number: No. 2006AP2866.,2006AP2866.
• Citation: 768 N.W.2d 749,2009 WI 84
• Parties: CITY OF MILWAUKEE POST NO. 2874 VETERANS OF FOREIGN WARS OF the UNITED STATES, Plaintiff-Appellant, v. REDEVELOPMENT AUTHORITY OF the CITY OF MILWAUKEE, Defendant-Respondent-Petitioner.
• Court: Wisconsin Supreme Court

768 N.W.2d 749

2009 WI 84

CITY OF MILWAUKEE POST NO. 2874 VETERANS OF FOREIGN WARS OF the UNITED STATES, Plaintiff-Appellant, v. REDEVELOPMENT AUTHORITY OF the CITY OF MILWAUKEE, Defendant-Respondent-Petitioner.

No. 2006AP2866.

Supreme Court of Wisconsin.

Argued February 4, 2009.

Decided July 17, 2009.

For the defendant-respondent-petitioner there were briefs by Grant F. Langley, city attorney and Gregg C. Hagopian, assistant city attorney, Milwaukee, and oral argument by Gregg C. Hagopian.

For the plaintiff-appellant there were briefs by Hugh R. Braun, Melinda A. Hein, and Godfrey Braun & Frazier, LLP, Milwaukee, and oral argument by Hugh R. Braun.

An amicus curiae brief was filed by James S. Thiel, counsel for the Wisconsin Department of Transportation, and Abigail C.S. Potts, assistant attorney general, with whom on the brief was J.B. Van Hollen, attorney general, on behalf of the State of Wisconsin.

¶ 1 SHIRLEY S. ABRAHAMSON, C.J

The Redevelopment Authority of the City of Milwaukee seeks review of a published decision of the court of appeals reversing a judgment of the Circuit Court for Milwaukee County, Elsa C. Lamelas, Judge.¹ The judgment of the circuit court was that the Redevelopment Authority is not obligated under Article I, Section 13 of the Wisconsin Constitution to pay any sum to the City of Milwaukee Post No. 2874 Veterans of Foreign Wars of the United States as just compensation for the taking of a parcel of real property in which the VFW held a leasehold interest. The judgment also required the VFW to return a $300,000 award that it had previously received from the Redevelopment Authority and to pay $87,348 in interest and statutory costs.

¶ 2 The court of appeals reversed the judgment of the circuit court and remanded the cause to the circuit court, instructing that "the VFW must be afforded an opportunity to prove the value of its separate leasehold interest" in the condemned property and to receive compensation therefor.

¶ 3 We reverse the decision of the court of appeals and affirm the judgment of the circuit court. We conclude that the unit rule the circuit court applied in the present case does not contravene the VFW's state constitutional right to just compensation.²

¶ 4 The circuit court applied the "unit rule" in determining the amount that the Redevelopment Authority had to pay the VFW as just compensation for the taking. Under the unit rule, when property that is held in partial estates by multiple owners is condemned, the condemnor pays the fair market value of an undivided interest in the property rather than the fair market value of each owner's partial interest.³ Apportionment of the total sum awarded is then made among the owners. Fair market value is the sum a willing purchaser would pay to a willing seller for the property, taking into consideration the uses of the land.⁴ The court is not being asked to determine the value of the VFW's leasehold interest or the cost to the VFW of obtaining comparable replacement facilities.

¶ 5 A jury found that the undivided interest in the property condemned in the present case by the Redevelopment Authority had no value at the time of the taking. In accordance with the unit rule and with the jury's verdict, the circuit court entered a judgment declaring that the VFW is not entitled to receive any compensation from the Redevelopment Authority and must reimburse the Redevelopment Authority for money paid to it.

¶ 6 The VFW contends that because the terms of its lease agreement were exceedingly favorable ($1 a year rent for a renewable 99-year term), the VFW's leasehold interest in the condemned property had value notwithstanding the property's lack of value. The VFW argues that under the circumstances of the present case, the unit rule operates to deprive it of just compensation contrary to Article I, Section 13 of the Wisconsin Constitution. The VFW thus challenges the circuit court's judgment on the ground that the circuit court improperly instructed the jury to determine just compensation according to the unit rule. The VFW urges the court to apply the "separate valuation" (or "independent valuation") rule in the present case in lieu of the unit rule to determine the fair market value of the condemned property.⁵

¶ 7 We state the issue on review as follows: If the VFW, which holds a long-term favorable lease, receives no compensation for its leasehold interest under the unit rule, has the VFW's right to just compensation under Article I, Section 13 of the Wisconsin Constitution been violated? In other words, the court is asked to determine whether the application of the unit rule in the present case violates the just compensation clause when the fair market value of the property is zero, rendering the VFW entitled to $0 for the loss of its property interest as a lessee.

¶ 8 We conclude that using the unit rule in the present case to value the whole property to determine the amount of compensation due to the VFW does not violate the just compensation clause. We conclude that the VFW receives just compensation when it receives no compensation for its leasehold interest in a property that has no value. Accordingly, we reverse the decision of the court of appeals reversing the judgment of the circuit court. The judgment of the circuit court is affirmed.

¶ 9 Inquiring minds might ask how the property at issue in the instant case can be worth nothing. The property is located in the heart of the City of Milwaukee. Even if the building is worthless, isn't the land worth something, and doesn't the VFW as a lessee have an interest in the land upon which the hotel stands?

¶ 10 The answer is that the property as a whole is worth nothing because it is financially infeasible to use the property either by remodeling the hotel building or by demolishing the building to get at the unimproved land. An appraiser testified (and the jury apparently accepted) that the cost of remodeling the building to make it usable would be more than the fair market value of the building and land. Furthermore, the appraiser testified, and the jury again apparently accepted, that although the unimproved land does have value, the value of the land in an undeveloped state is exceeded by the cost of demolishing the building to render the land vacant.

I

¶ 11 The Redevelopment Authority and the VFW have been parties to numerous proceedings relating to the Redevelopment Authority's taking of the property at issue. Many of these proceedings are not directly within the scope of our review and are not fully documented in the circuit court record in the present case. We do not offer a comprehensive account of the history underlying this case.⁶ We briefly state the facts and refer to prior proceedings as relevant to the issue on review.

¶ 12 The VFW owned a parcel of real property situated at 2601 West Wisconsin Avenue in the City of Milwaukee that is the subject of the condemnation. It used this property as its headquarters. In 1961, the VFW conveyed the real estate (land and improvements) to Towne Metropolitan, Inc., which built an 11-story, 113,000-square-foot hotel on the land.

¶ 13 In exchange for conveying the real estate, the VFW obtained a 99-year lease for 5,250 square feet on the hotel's ground floor, was amounting to 4.6 percent of the building. The lease provided that the VFW's space in the hotel would be designed for the VFW's purposes and that all leasehold improvements and equipment would be furnished by the lessor. It further provided that the lessor would pay all real estate taxes and would provide heat, air conditioning, maintenance, and periodic redecoration at no cost to the VFW. The lease obligated the VFW to pay an annual rent of only $1 and was renewable for a second 99-year term at the VFW's option.

¶ 14 Under the lease, the VFW was vulnerable, however, to complete loss. The lease was subordinate to any mortgage against the building, allowing a lender to foreclose and wipe out the lease. The VFW's interest reverted to the lessor when the VFW ceased to occupy the building. The lessor had no duty to assure that in the event of eminent domain the building would have adequate value to compensate the VFW for the value of its lease. The lease was silent regarding allocation of the proceeds of condemnation.

¶ 15 Towne Metropolitan sold the real estate in 1986 to Marquette University, which used the hotel as a dormitory. In 1994, Marquette University sold the real estate to Maharishi Vedic University for $600,000. With each sale of the property, the VFW's lease was assigned to the new owner, who had the responsibility of complying with the VFW's lease. Maharishi Vedic University never occupied the hotel after purchasing it but continued to provide utilities and maintenance for the VFW's space.

¶ 16 Although the premises rented by the VFW apparently remained in habitable condition, by the 1990s the hotel as a whole had deteriorated, along with the surrounding neighborhood. In February 1998, the Redevelopment Authority held a public hearing to consider creating a redevelopment district in an area including the real estate at 2601 West Wisconsin Avenue. In January 1999 the Redevelopment Authority created a redevelopment district and issued a relocation order. The Department of Commerce approved the Redevelopment Authority's relocation plan in May 1999.

¶ 17 In January 2001, the Redevelopment Authority issued a jurisdictional offer to purchase the real estate at 2601 West Wisconsin Avenue, including the hotel and any other improvements, as well as an adjoining parking lot owned exclusively by Maharishi Vedic University. After locating comparable properties, the Redevelopment Authority made a jurisdictional offer in the amount of $440,000 as compensation for (1) land and improvements (with the VFW and Maharishi Vedic University as owners), (2) personal property in the hotel owned by Maharishi Vedic University, and (3) an adjoining parking lot...