State v. Hammer, s. 2500
| Citation | 550 P.2d 820 |
| Decision Date | 24 May 1976 |
| Docket Number | 2660,Nos. 2500,s. 2500 |
| Parties | STATE of Alaska, Appellant, v. John HAMMER et al., Appellees. KITO'S KAVE, INC., Cross-Appellant, v. STATE of Alaska, Cross-Appellee. |
| Court | Supreme Court of Alaska (US) |
Thomas R. Wickwire, Asst. Atty. Gen., Avrum M. Gross, Atty. Gen., Juneau, for appellant and cross-appellee.
L. B. Jacobson of Robertson, Monagle, Eastaugh & Bradley, Anchorage, for appellee and cross-appellants, kito's Kave.
Michael M. Holmes of Faulkner, Banfield, Doogan & Holmes, Juneau, for appellee, John Hammer.
Before BOOCHEVER, C. J., and RABINOWITZ, CONNOR, ERWIN and BURKE, JJ.
This appeal raises a question of first impression concerning the state's obligation to compensate the owner of a business for damage done to that business by the state's exercise of its powers of eminent domain.
In May, 1973, the State of Alaska filed a complaint under AS 09.55.240, et seq., against certain lands in Petersburg, Alaska, which were in the path of the Petersburg Highway. One of these parcels was owned by appellee Hammer; on it stood a two story building, the first floor of which was leased by appellee Kito's Kave, Inc., a bar business owned by Richard Kito. While Kito knew as of November, 1972, that the property would be condemned at some point in the future, he did not know when he would have to vacate. His first notice of the condemnation proceeding came with the filing of the complaint; when he was forced to vacate on September 29, 1973, he had not been able to secure new premises. He continued to investigate alternative locations, including dry-docking a small ferry boat, and finally constructed a building for the bar, with the help of a substantial Small Business Administration loan. Kito's Kave reopened in July, 1974, nine months after it had closed.
After a master's hearing, the case was tried to a jury. 1 The trial developed into a three-way contest: Hammer and the state contested the value of the property; Hammer and Kito differed over the relative values of the leasehold and the reversionary interest; and Kito and the state disputed the allowance for certain incidental 2 damages. The jury awarded $21,500 to Hammer for his interest. It awarded to Kito $20,000 for the leasehold; $7,500 for bar equipment condemned by the state; a stipulated amount, $444, for depreciation in bar equipment due to relocation, and incidental dental damages of $5,735 for five months of loss of profits due to business interruption, at a stipulated $1,147 a month.
The state has appealed from the trial court's ruling allowing Kito to present evidence on certain items of incidental damage. Since the trial court later excluded from the jury's consideration all of this evidence but that which pertained to loss of profit damages, we consider only that item here. The state has not chosen to contest the jury's finding that five of the nine months interruption of business were directly caused by the state's taking of Kito's leasehold, 3 but instead argues that as a matter of law such damages should not be awarded. We are therefore presented with the question of whether temporary loss of profits due to business interruption directly resulting from a state's taking of the land on which the business operated is a damage to property compensable under our constitution.
The traditional view has been that such damages, as part of the category of incidental damages, are not recognized in eminent domain proceedings, being damnum absque injuria, a loss which does not give rise to an action for damages. 4 Compensation has been denied under three theories: that damage to personal property need to be compensated for; that the state has taken the land only, and not the business; and that the damages are too speculative to be awarded. 5 The first theory is inapplicable in Alaska, since by statute and case law, 6 personal property is included in the categories of property for which the condemnor must compensate the owner. We do not find either of the other theories sufficiently persuasive to cause us to deny compensation for the damages suffered here.
That the state takes only the land, not the business, is an older line of reasoning, 7 reaching its peak in the leading case, Mitchell v. United States, 267 U.S. 341, 45 S.Ct. 293, 69 L.Ed. 644 (1925). There the federal government took, under its eminent domain power, a farm, with a cannery operation based on it. The soil of the farm was uniquely suited to growing a certain type of corn, which the cannery processed and sold. Relocation of the farming and cannery business was impossible. That court said:
No recovery therefor can be had now as for a taking of the business. There is no finding as a fact that the government took the business, or that what it did was intended as a taking. If the business was destroyed, the destruction was an unintended incident of the taking of land. 8
This approach has several serious flaws. First, it conflicts with our principle of compensation, which, instead of looking at the benefit to the condemnor as a measure of compensation, looks to the loss to the owner, as measured by an objective standard. 9 In this case, for example, Hammer and Kito received compensation for the loss of their interests in the building, not for the state's gain of a roadbed. Secondly, Mitchell v. United States, supra, was decided under the fifth amendment to the United States Constitution, which unlike the Alaska Constitution, does not expressly require compensation for damage to property. 10 Finally, the reasoning of Mitchell is unacceptable because it fails to provide a realistic measure of what has been taken. The court simply ignored, for the purposes of compensation, the destruction of Mitchell's business, characterizing it as 'an unintended incident of the taking'. This court would poorly serve the law if it were to so blind itself to the realities of condemnation. 11
Uncomfortable with the position that the Mitchell reasoning left them in, courts shifted their ground and began to deny compensation for incidental damages, particularly loss of profit damages, because the damages were too speculative and uncertain to award. 12 We find this judicial reluctance surprising in light of general willingness to award such damages in other civil actions.
Loss of profits damages have been awarded in a variety of civil contexts, including tort actions (both personal and business), breach of contract actions, antitrust suits, and suits for infringement of a patent or trademark. 13 In any case seeking loss of profits, such damages must be 'reasonably certain': 14 the trier of fact must be able to determine the amount of lost profits from evidence on the record and reasonable inferences therefrom, not from mere speculation and wishful thinking. Thus, claims which are truly speculative, in that they depend on unrealized contingencies, unproved products, or the like, are screened out by the requirements of reasonable certainty, while damages which can be proven are allowed. It is incongruous that courts allow proof of loss of profits damages in most types of actions, on a case by case basis, and yet in eminent domain cases bar all such claims as inherently speculative. Loss of profits damages are as susceptible of proof in an eminent domain case as in any other; certainly the loss of profits where a business temporarily ceases to operate is easier to determine than the loss of profits due to trademark infringement, where the plaintiff continues to operate, although without an anticipated increase in business. In this case, the monthly amount of profits lost was stipulated to by the parties, eliminating any problem of proof. 15
Our dissatisfaction with the reasoning used to deny compensation for damages such as loss of profits due to business interruption is shared by commentators, 16 and by courts, 17 which while feeling compelled by precedent to deny compensation, have commented on the harshness of the result. Other courts, faced with intolerably inequitable results, have simply rejected the traditional views. 18 In Luber v. Milwaukee County, 47 Wis.2d 271, 177 N.W.2d 380 (1970), the Wisconsin Supreme Court held unconstitutional a state statute limiting recovery for rents lost, because of condemnation, to one year, holding that the condemnees had a constitutional right to compensation for all rents lost due to the taking. The court pointed out that over time the use of the fair market value measure of compensation alone had become inadequate:
The importance of allowing recovery for incidental losses has increased significantly since condemnation powers were initially exercised in this country. During the early use of such power, land was usually undeveloped and takings seldom created incidental losses. Thus the former interpretation of the 'just compensation' provision of our constitution seldom resulted in the infliction of incidental losses. The rule allowing fair market value for only the physical property actually taken created no great hardship. In modern society, however, condemnation proceedings are necessitated by numerous needs of society and are initiated by numerous authorized bodies. Due to the fact people are often congregated in given areas and that we have reached a state wherein re-development is necessary, commercial and industrial property is often taken in condemnation proceedings. When such property is taken, incidental damages are very apt to occur and in some cases exceed the fair market value of the actual physical property taken. 19 (footnote omitted)
The court concluded that 'the rule making consequential damages damnum absque injuria is, under modern constitutional interpretation, discarded . . .' 20
The Supreme Court of Florida, in jacksonville Expressway Authority v. Henry G. Du Pree Co., 108 So.2d 289 (Fla.1958), also concluded that fair market value of the property taken...
To continue reading
Request your trial
-
Kafka v. Montana Dept. of Fwp
...criticism and has been rejected by a number of courts and legislatures. See Oswald, 32 B.C. L.Rev. at 319-75; State v. Hammer, 550 P.2d 820, 823-26 (Alaska 1976); Bowers v. Fulton County, 221 Ga. 731, 146 S.E.2d 884, 889-91 (1966); Michigan State Highway Commn. v. L & L Concession Co., 31 M......
-
Primetime v. City of Albuquerque
...asked to consider such a move. But we frankly doubt our courts would adopt the rationale of cases such as State v. Hammer, 550 P.2d 820, 824, 827 (Alaska 1976), a permanent takings case in which the Alaska Supreme Court rejected the normal rule that damages over and above the fair market va......
-
Primetime Hospitality v. Albuquerque
... ... In State ex rel. State Highway Commission v. Pelletier, 76 N.M. 555, 560, 417 P.2d 46, 49 (1966), an appeal ... Hammer, ... 206 P.3d 120 ... 550 P.2d 820, 824-25 (Alaska 1976) (rejecting the non-compensability of ... ...
-
City of Phoenix v. Leroy's Liquors, Inc.
...to require compensation for various types of damages in addition to the value of the property taken. E.g., State v. Hammer, 550 P.2d 820, 826-827 (Alaska 1976); Bowers v. Fulton County, 221 Ga. 731, 146 S.E.2d 884, 890 (1966); Jacksonville Expressway Auth. v. Henry G. Du Pree Co., 108 So.2d......