Eminent domain isn’t automatic

December 24, 2009
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The taking of private property by a public entity jumped into the news recently when the directors of Grand Valley State University voted to let the school use its power of eminent domain to buy a vacant downtown warehouse if De Vries Development, the owner, balked at the university’s offer.

Commercial property owners know that eminent domain is a threat to their portfolios, one that needs to be taken seriously. But some may not know that being “domained” doesn’t always result in a loss of property or in a price they feel is less than a property’s value.

Bruce Courtade, a partner at Rhoades McKee and a member of the law firm’s real estate practice, has litigated eminent domain cases. One involved the Lowell Public Schools, which wanted a privately owned property that served as a shooting range. Courtade represented the property owner and the case was heard in Kent County Circuit Court.

“One of the things that they had to prove and we were able to win — and nobody thought we ever could — was the ‘necessity’ issue. And we beat it on a necessity grounds, which was pretty much unheard of,” he said.

“Necessity” is really one of only two legal options owners have to win an eminent domain suit. In a case, a governmental entity needs to show that it has no reasonable alternative to the property in question.

“What we were able to do in the (Lowell) situation is show there were plenty of other options available to them. This was their top choice, but there were many other options available, and we defeated it in court on a necessity ground. The court said it wasn’t necessary for them to take that particular parcel,” said Courtade.

Some cases can be settled. Rhoades McKee once represented a property owner who was facing an eminent domain order from Kent County. The county targeted his property — a parking lot — for a new downtown courthouse Kent wanted to build. The order was filed, but the parties agreed to a private settlement and the case never reached a verdict.

“This is how it normally works,” said Courtade. “They started the proceedings, but they were able to resolve it.”

Another case Courtade recalled involved the Michigan Department of Transportation, which bought a piece of privately owned land for M-6. The case revolved around what is largely the most-often argued eminent-domain issue — price, and much of the time it leads to a battle of appraisals.

In this type of case, Courtade said what has to be determined is the highest and best use of the property and the value of the property at its highest and best use. Both sides hire appraisers. Then if the case goes to trial, the appraisers testify.

“You end up with each side trying to shoot holes in the other side’s expert,” he said.

“That’s what most of the eminent domain cases end up being about.”

Scott Steiner, also a partner at Rhoades McKee and a member of the firm’s real estate practice, said before a governmental agency can take a property by eminent domain, it has to make a “good faith” offer to a property owner. An appraisal that supports an offer also has to be given to the owner.

“So they actually have to make an effort to make a market-value-based offer to an owner. An owner, at that point, can accept it or not,” said Steiner.

“If an owner chooses not to, then a government agency would have to adopt a resolution declaring the necessity to exercise the power of eminent domain to acquire the property. From there, that leads to a filing of a lawsuit to acquire a property,” he added.

Besides necessity, which challenges the use a public body has for a site, the only other real option for an owner is to claim that the value of a property is worth more than the government’s appraisal.

Steiner said the U.S. and Michigan constitutions give a government the power to take private property for a public purpose if it pays “just compensation.” So the appraised value has to be fair, and the use has to be a public one. But he said the highest court has made it a bit more difficult for owners to challenge a government on whether its intended use truly serves a public purpose.

“The scope of what you can challenge at this point under Michigan law has been whittled down to some extent because of some Michigan Supreme Court decisions in recent years. One of the restrictions is, basically, you can’t review the decision to make the improvement,” said Steiner. “In other words, you can’t challenge a government agency’s decision to build a highway or to have a museum there. You can’t say, ‘We don’t really need a museum.’ You can’t second guess that decision,” he said

“But what you can ask a court to review is the necessity of acquiring a specific property for a project. That’s a pretty limited inquiry, actually,” he explained.

Although some cases can have legal nuances that are too many to detail, in general, a private owner’s best option to seriously fight a domain case is to get a higher appraisal for a property than a public body has submitted.

“That’s usually what happens in most cases, because it is very difficult to have a court second guess the government agency and declare an acquisition void. Most cases just really come down to what is just compensation,” said Steiner.

“Most court proceedings are based on the development of expert testimony by appraisers. The government has its appraiser. The property owner has an appraiser. Cases develop based on what is the just compensation for the property owner for the taking of the property.”

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