Wensmann Realty, Inc. v. City of Eagan, A05-1074.

• Decision Date: 12 July 2007
• Docket Number: No. A05-1074.,A05-1074.
• Citation: 734 N.W.2d 623
• Parties: WENSMANN REALTY, INC., et al., Appellants, v. CITY OF EAGAN, Respondent.
• Court: Minnesota Supreme Court

734 N.W.2d 623

WENSMANN REALTY, INC., et al., Appellants, v. CITY OF EAGAN, Respondent.

No. A05-1074.

Supreme Court of Minnesota.

July 12, 2007.

William Christopher Penwell, Siegel, Brill, Greupner, Duffy & Foster P.A., Minneapolis, MN, for Appellant.

George C. Hoff, Justin L. Templin, Hoff, Barry & Kozar, P.A., Eden Prairie, MN, John M. Baker, Greene Espel, P.L.L.P., Minneapolis, MN, for Respondent.

Joseph G. Springer, Laurie J. Miller, Fredrikson & Byron, P.A., Minneapolis, MN, for Builders Association of the Twin Cities and National Association of Industrial and Office Products.

Susan L. Naughton, League of Minnesota Cities, St. Paul, MN, for Amicus Curiae.

Timothy J. Dowling, Community Rights Counsel, Washington, D.C., for League of

Minnesota Cities and Community Rights Counsel, American Planning Association, and Minnesota Planning Association.

Bruce D. Malkerson, Howard A. Roston, Patrick B. Steinhoff, Malkerson Gilliland Martin LLP, Minneapolis, MN, for Minnesota Land Use Institute.

Peter K. Beck, Gray Plant Mooty, Minneapolis, MN, for Midwest Golf Course Owners Association.

Heard, considered, and decided by the court en banc.

OPINION

GILDEA, Justice.

Appellant Wensmann Realty, Inc., entered into a purchase agreement with appellant Rahn Family LP for golf course property located in respondent City of Eagan. The purchase agreement was contingent on the city amending its comprehensive plan to permit residential development of the property. After the city denied the proposed comprehensive plan amendment, Wensmann and Rahn (collectively, the property owner) commenced an action against the city, alleging that the denial was arbitrary and capricious and constituted a taking of the property without just compensation. On cross-motions for summary judgment, the district court granted declaratory relief and alternatively a writ of mandamus to the property owner. The court of appeals reversed, concluding that the denial of the comprehensive plan amendment had rational bases and that the record did not support a taking. We conclude that the denial of the comprehensive plan amendment was not arbitrary or capricious and affirm on that issue, but we cannot decide the takings issue due to the presence of disputed fact issues. Therefore, we reverse the court of appeals' conclusion on the takings claim and remand to the district court for further proceedings.

This land use dispute concerns 120 acres in Eagan, which have been known since the 1960s as the Carriage Hills Golf Course, a privately-owned eighteen-hole golf course that was open to the public. When the golf course was established, the area surrounding the property was largely rural. Since then, residential development has taken place on each side of the property except the north side, where Yankee Doodle Road borders the property. Currently, the land surrounding the property to the west, south, and east is designated for residential use, ranging from low to high density development. A school is located on the north side of the property.

In 1996, the original owner of the golf course sold the property to Rahn for $3.6 million. At the time, the comprehensive plan designation for the property was "Public Facilities." Rahn bought the property shortly after the city denied a request to amend the comprehensive plan to permit residential development of the property. Rahn was aware of the city's action. Rahn had experience operating golf courses and intended to operate a golf course on the property. Rahn acknowledges that it had no intention at the time of purchase of selling the property for development purposes.

In 1999, Rahn obtained a loan in excess of $3 million to pay off the contract for deed on the property and to pay for capital improvements to the golf course. Rahn asserts that the cost of the capital improvements at Carriage Hills "totaled well in excess of $300,000." But approximately $500,000 of the loan was used for a different golf course owned by Rahn.

In 2000, Rahn and the city entered into an assessment agreement for sewer, water, and street improvements. The city assessed charges for three parcels of land, each representing a portion of the property but for two of the parcels, the parties agreed to defer payments "until subdivision or development." The parties agree that the only payments Rahn has made under the assessment agreement have been related to its operation of the golf course on the property. At around the same time the assessment agreement was signed, a city engineer told Rahn that provisions were being made for future street extensions near the golf course "to accommodate future development of the Carriage Hills property."

When the city updated its comprehensive plan in 2001, the three golf courses in the city, including Carriage Hills, were designated as "P" (Parks, Open Space and Recreation), a category that "provides areas for public and private parks, open space, and recreational facilities." According to the comprehensive plan, "[p]arks, trails, open space and natural areas, athletic complexes, ice arenas, and golf courses are examples of desired uses in this category." To achieve consistency with the comprehensive plan, the property was rezoned to "P" (Park), a zoning district "intended for public and private park uses and related facilities." The permitted uses in a park district include camping grounds, golf courses, parks, playgrounds, swimming pools, and tennis courts. The city has recognized Carriage Hills as a component of the city's parks and recreation system, which the city has described as a "public-private partnership."

Although the golf course initially was profitable for Rahn, an economic downturn and an overbuilding of golf courses in the region have led to a more competitive industry. Rahn claims that the golf course has incurred significant cumulative losses amounting to hundreds of thousands of dollars. The city contends, however, that when debt service on the 1999 loan is excluded, the golf course operated at a profit through 2002.

The continuing losses led Rahn to conclude that the property was no longer economically sustainable as a golf course.¹ Rahn agreed in 2003 to sell the property to Wensmann, a developer and builder of residential homes. The agreement was contingent on government authorities reclassifying and rezoning the property to permit residential development.

In May 2004, Wensmann applied for an amendment to the city's comprehensive plan to allow residential development of the property. The application requested a land use designation of "Low Density Residential." Wensmann's proposal contemplated 480 housing units consisting of a mix of single-family homes, twin homes, townhomes, and empty nest housing. The proposed development would preserve 40 to 45 acres of park and open green space.

In connection with the application, Wensmann presented the city with two feasibility studies of Carriage Hills prepared by golf course analysts McMurchie Golf Management, Inc., and Hughes & Company, Inc. The McMurchie analysis concluded that, as of July 2004, the property had a supportable purchase price of $967,000 as a golf course. The McMurchie analysis also concluded that the golf course would need a minimum of $516,000 in improvements to maintain operations. The Hughes analysis indicated that the golf course is "functionally obsolete and has significant physical deterioration." "Even if the course is improved over time," the Hughes analysis stated that "there is barely enough cash to upgrade and effectively no return to ownership for taking such a risk." The Hughes analysis concluded that "the financial feasibility of future operation as a golf course is seriously impaired."

Wensmann's proposed development has faced substantial citizen opposition. An advisory planning commission recommended that the city deny the application. And in August 2004, the city council unanimously declined to amend the comprehensive plan to permit residential development of the property.

In support of its decision, the city council made numerous findings and conclusions, including concerns about burdening an already overcrowded school system; disrupting neighborhoods in the area with a significant increase in traffic; balancing the amount of residential and other types of land use classifications within the city; and maintaining the integrity of the comprehensive plan. The city council also concluded that Wensmann "failed to produce sufficient evidence to indicate that the existing Comprehensive Guide Plan designation makes the Property not viable for use as a golf course."

After the city denied the application and sometime in the fall of 2004 (the record does not disclose when), a representative of Wensmann made a multi-million dollar oral offer to Rahn to purchase the property with no conditions attached regarding the success or failure of the legal action or Wensmann's ability to pursue residential development of the property.² Rahn turned down the offer, but closed Carriage Hills at the end of the 2004 golf season. The golf course has not reopened.

On September 1, 2004, Wensmann and Rahn entered into an option agreement, granting Wensmann the exclusive right to buy the property. The option expires in September 2007, and a provision in the agreement required Wensmann to commence litigation against the city to try to compel the city to grant the necessary permits and approvals to develop the property for residential use.

Wensmann and Rahn commenced this action in Dakota County District Court. They sought declaratory relief that the city's denial of Wensmann's application for a comprehensive plan amendment is "arbitrary, capricious and unreasonable and effects a regulatory taking of the Property without just compensation." In the alternative, they petitioned for a writ of mandamus directing that the city commence eminent domain proceedings. The complaint alleged violations of the United States and...