Keeping Compensation Just

Keeping Compensation Just Part II Presented by YASMIN L. STUMP

Yasmin L. Stump T 317-705-0707 E yasmin@yasminstumplaw.com W yasminstumplaw.com A Pennwood Office Park, Suite 101 11495 North Pennsylvania Street Carmel, IN 46032

Hand Out Sesame Street s Cookie Monster

A. Eminent Domain Overview Relating to Just Compensation

1. Exercise of the Power of Eminent Domain

How is the power of eminent domain exercised? Procedure by which the power of eminent domain is exercised determined by the legislature o Statutes of eminent domain are in derogation of common law rights of property and must be strictly followed, both as to the extent of the power and as to the manner of its exercise. Indianapolis v. Schmid, 240 N.E.2d 66, 67 (Ind. 1968). o [P]roceedings to condemn property by the exercise of eminent domain, strictly, are not civil actions but are actions of a special character based wholly upon the statute. Id. at 70.

2. Eminent Domain Statutes and Rules

a. Indiana Eminent Domain Proceedings IC 32-24-1 et seq. General Act IC 32-24-2 et seq. Governs cities and towns IC 32-24-3 et seq. Governs state government IC 32-24-4 et seq. Governs utilities and other corporations IC 32-24-4.5 et seq. Governs the transferring of ownership or control of real property between private individuals IC 32-24-5 et seq. Governs the use of eminent domain for gas storage

b. Federal Eminent Domain Proceedings Governed by Fed.R.Civ.P. 71.1 o Rule governs proceedings to condemn real estate interests through eminent domain in federal courts o Much like 32-24-1 et seq. does in Indiana state court proceedings

c. When does just compensation come into play? 1. Statutory offer made prior to condemnation proceedings o Always made for state court proceedings 2. Report of Appraisers filed during condemnation proceedings 3. Second, or damages, stage of the condemnation proceedings

3. Just Compensation and Statutory Pre-Requisites

a. Indiana Pre-Condemnation Offer Statutes Good faith effort to purchase o IC 32-24-1-3 Good faith offer to purchase o IC 32-24-1-5

b. Federal Eminent Domain Proceedings Split of authority on pre-condemnation offer requirement Guardian Pipeline, LLC v. 529.42 Acres of Land, 210 F.Supp.2d 971, 973 (N.D. Ill. 2012) [J]udicial gloss that the holder must engage in good faith negotiations with the landowner before it can invoke the power of eminent domain. Transcontinental Gas Pipeline Corporation v. 118 Acres of Land, 745 F.Supp. 366, 369 (E.D.La. 1990) [F]ederal law requires the condemnor to have conducted good faith negotiations with the landowners in order to acquire the property. USG Pipeline Co. v. 1.74 Acres, 1 F.Supp.2d 816, 822 (E.D.Tenn. 1998) [C]ourts have imposed a requirement that the holder of the FERC Certificate negotiate in good faith with the owners to acquire the property.

c. Federal Cases Not Requiring Pre-Condemnation Offer E. Tenn. Natural Gas, LLC v. 3.62 Acres in Tazewell County, 2006 WL 1453937 (W.D.Va. 2006) [N]othing in the [Natural Gas] Act or Federal Rule of Civil Procedure 71A [now 71.1] requires the condemnor to negotiate in good faith. Kansas Pipeline Co. v. 200 Foot by 250 Foot Piece of Land, 210 F.Supp.2d 1253, 1257 (D.Kan. 2002) The plain language of the Natural Gas Act does not impose an obligation on a holder of a FERC Certificate to negotiate in good faith before acquiring land by exercise of eminent domain.

d. Good Faith Effort to Purchase IC 32-24-1-3(c) o Amended to require conducting good faith negotiations as part of a condemning authority s effort to purchase required by IC 32-24-1-3(b)(2) Murray v. City of Richmond, 276 N.E.2d 519 (Ind. 1971) o Requires condemning authority make offer based upon an appraisal of real estate o Series of offers and counteroffers not required Wagler v. West Boggs Sewer Dist., Inc., 898 N.E.2d 815 (Ind. 2008)

e. Good Faith Effort to Purchase (Cont d.) Green Fields, Ltd. v. Hancock County, Indiana, 2017 Ind. App. Unpub. LEXIS 391 *8-9(Mem. Decision) o Pre-condemnation offer to acquire real estate interests made in good faith if: 1. offer based on the fair market value of the real estate determined by an independent appraisal; 2. offer is provided as uniform form letter sent to the landowner; 3. offer includes proposed purchase price; 4. condemnation authority provides the landowner with an appraisal or other evidence used to establish the proposed purchase price; and 5. condemnation authority conducts good faith negotiations with the landowner

e. Good Faith Effort to Purchase (Cont d.) Green Fields, Ltd. v. Hancock County, Indiana, 2017 Ind. App. Unpub. LEXIS 391 *10(Mem. Decision): o County s pre-condemnation offer based upon independent appraisal concluding that the fair market value of the property was $17,900 o County sent a uniform form letter to landowner offering $17,900 for real estate interests and provided landowner with a copy of the appraisal o Landowner countered with a substantially higher price o County raised its original offer, but the parties still could not come to an agreement o Court held that based on this evidence, the County made a good faith offer and good faith effort to negotiate

f. Good Faith Offer to Purchase Specific format required for making offer IC 32-24-1-5(b) Pre-condemnation offer must be: o Based upon an appraisal o Prepared by a qualified appraiser o City of Evansville v. Reising, 547 N.E.2d 1106 (Ind. Ct. App. 1989) Note that: o If two appraisals are prepared for municipality, the offer based upon the average of the two o IC 36-1-10.5-5

f. Good Faith Offer to Purchase (Cont d.) Also note that: Although INDOT required to make pre-condemnation offer Not required to prove that it made an offer in subsequent eminent domain case IC 32-24-1-13(a) Burd Management, LLC v. State, 831 N.E.2d 104 (Ind. 2005) See also Boyd v. State, 976 N.E.2d 767 (Ind. Ct. App. 2012)

4. Eminent Domain Proceedings

a. When can an eminent domain lawsuit be filed? Landowner has 30 days to accept the precondemnation offer IC 32-24-1-5(a) Offer not accepted eminent domain lawsuit can be filed

b. Stages in Eminent Domain Proceedings Objections stage Damages stage

5. Just Compensation and Court- Appointed Appraisers

a. No Objections Filed or Objections, Overruled or Dismissed Court appoints three (3) disinterested appraisers IC 32-24-1-8(e) IC 32-24-1-7(c) o Two of the appraisers have to be Indiana residents and licensed appraisers in Indiana o One of the two licensed appraisers has to live no more than 50 miles from the subject real estate o Third appraiser must be a freeholder in the county where the subject real estate is located

b. Court-Appointed Appraisers Elements of Just Compensation Court-appointed appraisers must determine under IC 32-24-1-9: o Fair market value of each parcel of land being taken; o Fair market value of all improvements to the land being taken; o Residue damages; and o Other damages resulting from construction of improvements in manner proposed by the condemning authority. Total taking v. partial taking

c. Proceeding to the Damages Stage of an Eminent Domain Case Report of Appraisers filed with the court Parties have 45 days from date notice of report is sent by certified mail to file exceptions o IC 32-24-1-11(b) Timely exceptions filed case proceeds to damages stage o IC 32-24-1-11(c)

B. Just Compensation Source and Principles

1. Just Compensation

a. What is the source of just compensation? U.S. Constitution o 5 th Amendment o Applies to the states through the 14 th Amendment Indiana Constitution o Article 1, Section 21

b. What is just compensation? (Fair) market value It is well established in Indiana that the basic measure of damages in eminent domain cases is the fair market value of the property at the time of the take. State v. Bishop, 800 N.E.2d 918, 923 (Ind. 2003)(quoting State v. Church of the Nazarene of Logansport, 377 N.E.2d 607, 608 (Ind. 1978).

c. Fair Market Value Assumes willing seller and buyer o Southtown Properties, Inc. v. City of Fort Wayne ex rel. Dept. of Redevelopment, 840 N.E.2d 393 (Ind. Ct. App. 2006) Fair market value is the price at which property would change hands between a willing buyer and seller, neither being under any compulsion to consummate the sale. State v. Bishop, 800 N.E.2d 918, 923 (Ind. 2003)

d. Approaches to Fair Market Value Three (3) approaches to FMV o Market data/direct sales comparison o Cost approach o Income approach So. Ind. Gas. & Elec. Co. v. Russell, 451 N.E.2d 673; City of Carmel v. Leeper Elec. Services, Inc., 805 N.E.2d 389 (Ind. Ct. App. 2004)

e. Direct Sales Comparison Approach Most commonly used approach to FMV Determines value of land (and improvements) taken by comparing sales of other similar properties o Known as comparable sales Adjustments to comparable sales are made for time, market conditions, utilities, etc. o State v. Lincoln Memory Gardens, Inc., 177 N.E.2d 655 (Ind. 1961); City of Mishawaka on Behalf of Dept. of Redevelopment v. Fred W. Bubb Funeral Chapel, Inc., 469 N.E.2d 757, 761 (Ind. Ct. App. 1984)

f. Cost Approach Typically relied upon by appraisers Recognizes cost of improvements less depreciation Value of land determined by the sales comparison approach Use the cost approach permitted when the real estate is unique, the use to which is based upon this uniqueness o So. Ind. Gas & Elec. Co., 451 N.E.2d at 676 Substitution measure of damages is not permitted

g. Income Approach Used on income-producing real estate Capitalize income from the real estate No compensation for lost income, profits or capital gains Must deduct operation costs for maintenance o State v. Jones, 363 N.E.2d 1018 (Ind. Ct. App. 1977)

h. Highest and Best Use The reasonably probable and legal use of vacant land or an improved real estate, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. o The Dictionary of Real Estate Appraisal (3 rd Ed., published by the Appraisal Institute, Chicago, Illinois) If property has a higher market value by reason of uses to which it may be adapted, but to which it has not been put, the owner is entitled to a greater value. Lucre Corp. v. County of Gibson, 657 N.E.2d 150, 155 (Ind. Ct. App. 1995).

h. Highest and Best Use (Cont d.) First determination that appraisers make in determining real estate value Once determined, approaches to FMV considered Determinations of highest and best use can account for significant differences in just compensation

i. What is the effective date of valuation? Pre-condemnation offer: date of inspection Court-appointed appraisers and damages phase o Date of taking for land improvements and residue damages but not other damages Date of taking o Technically when defendant is served with notice of the appropriation under IC 32-24-1-6 o In practice, date eminent domain complaint is filed

C. Misunderstandings in Determining Just Compensation

1. Improperly Assessing Residue Damages What are residue damages? Governed by IC 32-24-1-9(c)(3) Arise when only a portion of a parcel is taken not a total taking Landowner entitled to damages from taken portion as well as damages that accrue to the residue from taking o State v. Peterson, 269 Ind. 340, 381 N.E.2d 83 (Ind. 1978); o S. Ind. Gas & Elec. Co. v. Ritzert, 240 N.E.2d 808 (Ind. 1968) Damages measured by diminution in the entire track s value Difference between the fair market value before and after the taking o Also called severance damages N. Ind. Pub. Serv. Co. v. McCoy, 157 N.E.2d 181 (Ind. 1959)

Severance Damages to Other Parcels Permitted when parcels are inseparably entwined, causing the taking of one to injure the other Must meet all of the following: o Unity of title or ownersip o Unity of use o Contiguity State v. Heslar, 274 N.E.2d 261 (Ind. 1971) But see: o City of Mishawaka v. Fred W. Bubb Funeral Chapel, 469 N.E.2d 757 (Ind. Ct. App. 1984) o Exception to contiguity requirement

2. Missing or Underestimating Cost-to-Cure Damages What are cost-to-cure damages? Occurs when remaining real estate suffers damage May be mitigated by an amount of money Amount of cost-to-cure damages may be used as a method of determining dmages o State v. Bishop, 800 N.E.2d 918 (Ind. 2003); 7A Rohan, Nichols on Eminent Domain Sec. G9A.04[4][d](3d ed. 2007) Method not used if cost-to-cure is greater than value of real estate as cured Example: new septic system when existing system taken

3. Misunderstanding or Inappropriately Offsetting Benefits Benefits only considered in cases involving: o Partial takings for highways and roads by state and counties o Takings by municipal corporations for public use Benefits must be pled specifically in the eminent domain complaint o IC 32-24-1-4(b)(5) Property is benefited when it is made more valuable, desirable or useful o Cleveland, C., C. & St. L. Ry. Co. v. Mumford, 197 N.E. 826 (Ind. 1934) Pichon v. Martin, 73 N.E. 1009 (Ind. Ct. App. 1905) Set off only against damages, not land or improvements

4. Failure to Consider Lost Crops and Crop Damage Common obstacles when determining compensability for agricultural properties Crops are considered real estate property until severed o Neal v. Bullock, 538 N.E.2d 308, 309 (Ind. 1989) The measure of damages will be determined by when crops were planted

Lost Crops and Crop Damage (Cont d.) Condemning authority should challenge any recovery request for recovery crops planted after date of taking IC 32-24-1-4; 32-24-1-9 o Rationale: Landowner not entitled to compensation for improvements made after date of taking Crop rotation o Landowner should have evidence of which crop (i.e., corn and soybeans) planted before date of taking

5. Improperly Assessing Billboards Income approach to FMV generally inappropriate Compensation permitted to relocate a billboard to another location within the market area State v. Bishop, 800 N.E.2d 918, 923 (Ind. 2003)

6. Including Compensation for Increase or Decrease in Value of Real Estate Due to the Project Known as the Project Rule State v. Sovich, 252 N.E.2d 582 (Ind. 1969) Southtown Prop. Inc. v. City of Fort Wayne, 840 N.E.2d 393 (Ind. Ct. App. 2006)

D. Non-compensable Items

Specific, future, intended use of real estate Maplewood Heights Corp., 302 N.E.2d at 782; State v. Tri-State College, 280 N.E.2d 813 (Ind. 1972) First Natl. Bank of Mishawaka v. Penn-Harris-Madison School Corp., 237 N.E.2d 108 (Ind. 1968) State v. City of Terre Haute, 238 N.E.2d 459 (Ind. 1968) Area Plan Comm n of Evansville, 720 N.E.2d at 391 Lucre Corp. v. County of Gibson, 657 N.E.2d 150 (Ind. Ct. App. 1996) City of Lafayette v. Beeler, 381 N.E.2d 1287 (Ind. Ct. App. 1978)

Diversion of flow of traffic Kimco of Evansville, Inc., 902 N.E.2d at 206 Weldon v. State, 279 N.E.2d 554 (Ind. 1972) Ensley, 164 N.E.2d at 350 Old Romney Dev. Co. v. Tippecanoe County, Indiana, 817 N.E.2d 1282 (Ind. Ct. App. 2004) Jenkins v. Bd. Of Comm rs of Madison County, 698 N.E.2d 1268 (Ind. Ct. App. 1998) State v. Cheris, 287 N.E.2d 777 (Ind. Ct. App. 1972) Most recent case: [A]n abutting landowner has no cognizable property right in the free flow of traffic past his property ( the traffic-flow rule ). AAA Fed. Credit Union v. Indiana Department of Transportation, 79 N.E.3d 401, 405 (Ind. Ct. App. 2017)

Illegal, improper, and/or nonconforming use of real estate See 5 NICHOLS ON EMINENT DOMAIN (Rev. 3 rd Ed. 1975) See also Palazollo v. Rhode Island, 533 U.S. 606 (2001) $100 v. State, 822 N.E.2d 1001 (Ind. Ct. App. 2005) Metro Dev. Comm n of Marion County v. Schroeder, 727 N.E.2d 742 (Ind. Ct. App. 2000) 409 Land Trust v. City of South Bend, 709 N.E.2d 348 (Ind. Ct. App. 1999)

Relocation/moving costs for personal property Bd. Of Comm rs of County of Knox v. Wyant, 672 N.E.2d 77 (Ind. Ct. App. 1996) Cheathem v. City of Evansville, 278 N.E.2d 602 (Ind. 1972) Separate administrative proceeding o IC 8-23-17 et seq. o 42 U.S.C. 4601 et seq. Negligent design of the improvements for which defendant s real estate is taken State v. Ahaus, 63 N.E.2d 199 (Ind. 1945) City of Elkhart v. No-Bi Corp., 428 N.E.2d 43 (Ind. Ct. App. 1981)

Lost business profits State v. Heslar, 274 N.E.2d 261 (Ind. 1971) Loss of business, good will or profits from business Elson, 204 N.E.2d at 857 Weldon v. State, 279 N.E.2d 554 (Ind. 1972) State v. Nelson, 296 N.E.2d 908 (Ind. Ct. App. 1973) Indiana & Michigan Elec. Co. v. Whitley County Rural Elec. Membership Corp., 312 N.E.2d 503 (Ind. Ct. App. 1974) Public Service Co. of Indiana, Inc. v. Morgan County Rural Elec. Membership Corp., 360 N.E.2d 1022 (Ind. Ct. App. 1977)

Generally, an annoyance or inconvenience caused by a highway improvement City of Hammond, 230 N.E.2d 326; State v. Stafaniak, 238 N.E.2d 451 (Ind. 1968 Bussing v. Indiana Dept. of Transp., 779 N.E.2d 98 (Ind. Ct. App. 2002) Public improvements made within the existing right-of-way State v. Kimco of Evansville, Inc., 902 N.E.2d 206 (Ind. 2009)

Damages resulting from improvements not in existence on date of taking State v. City of Terre Haute, 238 N.E.2d 459 (Ind. 1968) Damages for unmade or future improvements to real estate Maplewood Heights Corp., 302 N.E.2d at 782 Area Plan Comm n of Evansville, 720 N.E.2d at 391

Questions and Answers T 317-705-0707 E YASMIN L. STUMP LAW GROUP, PC yasmin@yasminstumplaw.com W yasminstumplaw.com A Pennwood Office Park, Suite 101 11495 North Pennsylvania Street Carmel, IN 46032