Anchorage v. Sandberg

861 P.2d 554, 1993 Alas. LEXIS 95, 1993 WL 388322

• Court: Alaska Supreme Court
• Decided: October 1, 1993
• Docket: S-4777
• Status: Published

Opinions

OPINION

MOORE, Chief Justice.

I. INTRODUCTION

In this inverse condemnation action, the Municipality of Anchorage (municipality) appeals the trial court’s grant of summary judgment in favor of Sandberg, Davis and Richards (SD & R). The municipality argues that the court erred in finding that its activities resulted in a taking of SD & R’s property pursuant to art. I, § 18 of the Alaska Constitution. We reverse the court’s grant of summary judgment in favor of SD & R and remand the case for entry of summary judgment in favor of the municipality.

II.FACTS AND PROCEEDINGS

The facts in this ease are not disputed. Between April 1982 and March 1983 SD & R acquired 12 lots in an undeveloped subdivision located in the midtown area of Anchorage with the intention of improving and reselling the lots. Water, sewer and road districts were needed to develop the property.

In May 1983 SD & R and other property owners in the subdivision petitioned for the creation of sewer and water assessment districts to provide sewer and water to the area.¹ The Assembly approved the sewer district in May 1984 and the water district a few months later. Following this approval, Anchorage Water and Wastewater Utility informed SD & R that construction of the water and sewer improvements would take place at the same time as construction of Altoona Drive in order to keep costs down. In June 1984 SD & R petitioned the municipality to create a road improvement district for the construction of Altoona Drive. However, SD & R requested that actual balloting for the Altoona Drive improvement district be delayed until it could be determined whether state funding was available.

In September 1984 SD & R sold nine of its 12 lots to the municipality for an extension of Gladys Wood Park. A year later, SD & R acquired the remaining five lots in the area, leaving SD & R with a total of eight lots. SD & R then obtained preliminary approval to subdivide these eight contiguous lots into 12 lots. As a result of SD & R’s purchases, all the property within the pending improvement districts was owned by three entities: the municipality, SD & R and A-C Investments.

In May 1986, after the municipality informed SD & R that state money would not be available for the construction of Altoona Drive, SD & R renewed its petition for the road improvement district. Later in the summer, SD & R voted in favor of a park improvement district authorizing the purchase of the 12 acre parcel owned by A-C Investments for an extension of Gladys Wood Park. After the Assembly approved the park improvement district in June, A-C Investments sold the municipality the 12 acre parcel. This sale left SD & R’s eight lots surrounded on three sides by municipal property designated as park land.

Because the municipality’s share of the approved water and sewer assessments exceeded the assessed value of SD' & R’s eight unimproved lots, SD & R wrote to the mayor in July, suggesting that the municipality purchase its lots.² Recognizing that its park acquisitions had created a problem, the Department of Parks and Recreation (the Department) began negotiating with SD & R in order to find a mutually satisfactory solution.

In October 1986 the Department informed SD & R that there was no possibility of a cash purchase and suggested a land trade. It also informed SD & R that it would oppose the Altoona Drive improvement district because a road was not necessary for park use and because construction costs were too high. The suggested land trade never occurred.

In March 1987 the municipality initiated a petition to “re-ballot” the approved water and sewer districts, claiming that new soils information indicated that construction costs would be significantly higher than originally estimated.³ SD & R protested the re-balloting, claiming that the municipality was attempting to walk away from a situation created by its park acquisitions in the area. In the re-balloting, the municipality voted its majority interest in opposition to the improvement districts while SD & R voted its minority interest in favor. The municipality prevailed and the Assembly abolished the water and sewer districts in December 1987.

In March 1988 SD & R filed an action for inverse condemnation. On cross-motions for summary judgment on the issue of liability, Superior Court Judge Rene Gonzalez found that the municipality’s actions had had an adverse impact on the value of SD & R’s property and that the municipality’s actions constituted a taking.⁴ This appeal followed.⁵

III. DISCUSSION

A. Standard of Review

We will only reverse a grant of summary judgment if there exists a genuine issue of material fact or if the successful movant was not entitled to judgment under the applicable law. Wassink v. Hawkins, 763 P.2d 971, 973 (Alaska 1988). We review de novo questions of constitutional law. Diedrich v. City of Ketchikan, 805 P.2d 362, 365 (Alaska 1991).

B. Did the municipality’s actions deprive SD & R of the economic advantages of land ownership, entitling SD & R to just compensation under art. I, § 18 of the Alaska Constitution?

Judge Gonzalez found that the municipality’s actions had “an adverse impact on the value of [SD & R’s] property and such adverse impact constitutes a taking[ ] and property damage for which just compensation must be paid under Art. I, Sec. 18 of the Alaska Constitution.” Article I, § 18 of the Alaska Constitution provides: “Private property shall not be taken or damaged for public use without just compensation.” This clause is interpreted liberally in favor of the property owner. State v. Doyle, 735 P.2d 733, 736 (Alaska 1987). The inclusion of the term “damage” in the Alaska Constitution affords the property owner broader protection than that conferred by the Fifth Amendment of the Federal Constitution.⁶ State v. Hammer, 550 P.2d 820, 824 (Alaska 1976).

The United States Supreme Court has recognized two classes of per se takings: (1) cases of physical invasion and (2) cases where a regulation denies a landowner of all economically feasible use of the property. See Lucas v. South Carolina Coastal Council, — U.S. —,— - —, 112 S.Ct. 2886, 2892-95, 120 L.Ed.2d 798 (1992).⁷ When, as here, a case does not fall into hither of these categories, courts must engage in a case-specific inquiry to determine whether governmental action effects a taking. Id., at-n. 8, 112 S.Ct. at 2895 n. 8. In State, Dep’t of Natural Resources v. Arctic Slope Regional Corp., 834 P.2d 134 (Alaska 1991), we identified several factors which the court should consider: (1) the character of the governmental action; (2) its economic impact; and (3) its interference with reasonable investment-backed expectations. Id., at 138-39 (citing Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1000-05, 104 S.Ct. 2862, 2871-74, 81 L.Ed.2d 815 (1984)). The legitimacy of the interest advanced by the regulation or land-use decision is also relevant to this inquiry. Id., at 143; Agins v. City of Tiburon, 447 U.S. 255, 260-61, 100 S.Ct. 2138, 2141-42, 65 L.Ed.2d 106 (1980).

1. Character of the Governmental Action

The concept of a “taking” has evolved over the years from the notion of a physical seizure to that of a diminution of the owner’s rights and attributes of ownership. See Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). Nonetheless,

[a] “taking” may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.

Id., at 124, 98 S.Ct. at 2659 (citations omitted). This is so because regulations and other land use decisions, unlike physical invasion, do not typically extinguish the “full bundle” of rights in a particular piece of property. Andrus v. Allard, 444 U.S. 51, 65-66, 100 S.Ct. 318, 326-27, 62 L.Ed.2d 210 (1979). Government actions become “takings” under principles of inverse condemnation when a private land owner is forced to bear an unreasonable burden as a result of the government’s exercise of power in the public interest. Agins v. City of Tiburon, 447 U.S. 255, 260-62, 100 S.Ct. 2138, 2141-42, 65 L.Ed.2d 106 (1980).

This case involves neither a physical invasion nor even a regulation constraining SD & R’s use of its property. Instead, it involves a series of municipal decisions which, indirectly, have rendered SD & R’s development plans economically infeasible. To find a taking where the infringement of SD & R’s property rights is so unclear, the severity of the economic impact and the reasonableness of SD & R's expectations concerning its development plans must weigh heavily in SD & R’s favor.⁸

2. Economic Impact

The trial court found that the costs of developing SD & R’s property without the improvement districts “would far exceed the fair market value of the lots as improved.” Because.SD & R could no longer feasibly develop its property as planned, the court concluded that SD & R had lost a significant economic advantage of ownership.

We have consistently held that a taking occurs when a landowner is deprived of substantially all beneficial use of property for a significant period of time due to a threatened or pending condemnation action. See Homeward Bound, Inc. v. Anchorage Sch. Disk, 791 P.2d 610, 614 (Alaska 1990);⁹ Ehrlander v. State, Dep't of Transp., 797 P.2d 629 (Alaska 1990).¹⁰ In Homeward Bound, we stated:

Private property is taken or damaged for constitutional purposes if .the government deprives the owner of the economic advantages of ownership.

791 P.2d at 614. We went on to observe that “[t]he economic advantages incident to ownership of unimproved property are the potential for appreciation and the opportunity for development.” Id., at 614 n. 6; see also Stewart & Grindle, Inc. v. State, 524 P.2d 1242, 1247 (Alaska 1974).¹¹

This case differs significantly from Homeward Bound, Ehrlander and Stewart in that the municipality has never threatened or initiated condemnation proceedings. In fact, unlike the typical regulatory taking case,¹² the municipality has never placed any direct restrictions on SD & R’s right to use and develop any portion of its property. Nevertheless we recognize that it has now become economically infeasible for SD & R to develop its land in part due to the municipality’s change of plans. The real question presented by this case is whether SD & R’s expectations concerning its development plans were reasonable and whether those expectations should be afforded constitutional protection.

3. Reasonable Investment-Backed Expectations

In Arctic Slope, we observed that, for taking purposes, “ ‘a reasonable investment-backed expectation’ must be more than a ‘unilateral expectation or an abstract need.’ ” 834 P.2d at 140 (citing Ruckelshaus, 467 U.S. at 1005, 104 S.Gt. at 2874) (holding that Alaska’s Oil Conservation Act and regulations contained no "guarantee” or “express promise” that the Department of Natural Resources would not use well data for internal departmental purposes). It is undisputed that SD & R’s lots could not be developed without the approval and construction of the necessary water, sewer and road improvements. In order to find a compensable taking under Arctic Slope, we would have to conclude that the Assembly’s approval of the water and sewer districts constituted some kind of “guarantee” or “express promise” that the road improvement district providing access to SD & R’s property would eventually be approved and constructed.¹³ There is absolutely no basis for such a conclusion.

Even if the municipality had not rescinded the water and sewer improvement districts, SD & R still could not have feasibly developed its property unless the municipality also voted in favor of the road improvement district. In 1985 the City Engineers Office estimated it would cost approximately $634,000 to construct Altoona Drive. If SD & R had borne this cost alone, its per lot development cost would have skyrocketed to approximately $89,000. Given that the value of comparable improved lots in the area ranged between $45,000 and $37,000 in 1985, SD & R would clearly have had no financial incentive to develop its property.

The dissent skates over this fact in concluding that SD & R’s investment in the property represents the type of “reasonable investment” which should be protected by the Takings Clause. SD & R’s investment (i.e., obtaining the water and sewer districts, purchasing five additional lots and obtaining preliminary approval of its subdivision plan) could not bear fruit without the participation of area landowners in the road improvement district. SD & R gambled that the road improvement district would be approved and they lost this gamble, in part, because A-C Investments opted to sell its 12 acre parcel to the municipality instead of proceeding with its own development plans. To conclude, as does the dissent, that the municipality’s purchase of property in the area and its decision not to participate in the road district constitutes a taking of SD & R’s property would imply that the municipality assumed a duty to participate in the road improvement district when it acquired the area property. In the normal course of events, neither the municipality nor a private landowner has any obligation to vote in favor of a proposed improvement district. See Executive Directive 8 (providing special procedures but still allowing the municipality to vote in opposition to the majority of private landowners). In the absence of a viable estoppel claim, no legal principle requires the municipality to compensate SD & R simply because it exercised its right as a majority landowner not to participate in the road improvement district. See supra n. 8.

Although SD & R may have hoped and expected to obtain the road improvement district, its expectation was always contingent on the agreement of the other landowners in the assessment area. For this reason, we conclude that development of SD & R’s lots never progressed beyond the planning stage. SD & R’s acquisition of these lots and subsequent petitions for improvement districts do not evidence a reasonable investment-backed expectation, but rather, a business gamble.¹⁴ See, e.g., Habersham at Northridge v. Fulton County, Georgia, 632 F.Supp. 815, 823-24 (N.D.Ga.1985) (holding that the county board’s refusal to change a property’s zoning from residential to commercial did not constitute a taking), affd, 791 F.2d 170 (11th Cir.1986).

4. Governmental Interest

SD & R argues that the municipality’s actions constitute an improper use of municipal authority to avoid the consequences of its own poor planning. We disagree. We have previously held that the financial stability of a governing body is a legitimate governmental purpose in the regulatory takings arena. Arctic Slope, 834 P.2d at 143. In cases such as this, the municipality retains the option to change its position for fiscal reasons after improvement districts are approved.¹⁵

IV. CONCLUSION

On the record presented, SD & R has failed to establish, as a matter of law, that it is entitled to compensation under the Alaska constitution. The municipality has not deprived SD & R of any “vested right” or directly constrained its use of its property in any way. We also conclude that SD & R has not been deprived of any reasonable investment-backed expectations. The municipality declined to participate in the improvement districts because these improvements were not necessary for park use and they would have constituted a waste of municipal resources. To find a taking in a case such as this, where a governing body’s acquisition and planned use of its property indirectly makes a neighboring landowner’s development plan economically infeasible would create major problems for urban planning. Cf. Ehrlan-der, 797 P.2d at 636 n. 6 (“If a governmental entity ... were held subject to a claim for inverse condemnation merely because a parcel of land was designated for potential public use ... the process of community planning would ... grind to a halt_”) (quoting Selby Realty Co. v. City of San Buenaventura, 10 Cal.3d 110, 109 Cal.Rptr. 799, 514 P.2d 111, 117 (1973)). Because SD & R’s speculative development plans do not merit constitutional protection as a matter of law, we reverse the trial court’s grant of summary judgment in favor of SD & R and remand this case for entry of summary judgment in favor of the municipality.

REVERSED and REMANDED.

COMPTON, J., dissents.

1 . In 1983 SD & R owned 12 lots in the area; the municipality owned 12 lots; other individual owners owned five lots. The proposed sewer and water districts would provide services to all these lots plus a 12 acre lot owned by A-C Investments, located on the other side of the dedicated but unconstructed road, Altoona Drive.

2 . Anchorage Water and Wastewater Utility’s cost estimates of the approved water and sewer districts totalled $283,621. As a result of the 12 acre purchase, the municipality assumed a pro rata share of $212,736 in the approved improvement districts. In 1986, the assessed value of SD & R’s eight lots was $161,900 (approximately $20,230 per lot).

3 . AMC 19.30.070 allows re-balloting of a previously approved improvement district if construction costs increase by more than 10% between the time of Assembly approval and eventual construction. The municipality's petition read, in part:

At the time [the sewer and water improvements were created], costs were estimated based on the simultaneous construction of a Road Improvement District along the proposed alignment. Since the creation [of the improvement districts], soils investigations proved the area to be heavily laden with peat soils ranging in surface depths from three to twenty-five feet. The additional cost of excavation boosted the cost of the project extensively. Property owners had also requested the road improvements be contingent on grant funding or anticipated State appropriations. Three years have passed, and still funding priorities have not allowed the road improvements.

On cross-motions for summary judgment, Superior Court Judge Rene Gonzalez found that the municipality had failed to present any evidence indicating that new soils information existed.

4 . The trial court focused on three actions by the municipality: (1) the municipality’s purchases of park land in the area; (2) its votes against the approved water and sewer districts; and (3) its decision not to participate in the road improvement district. The court concluded that SD & R’s property could not be feasibly developed because, as a result of the municipality’s actions, the development costs of SD & R's eight lots would exceed the fair market value of SD & R's property as improved. ■

5 . In August 1991 the trial court entered final judgment, ordering the municipality to pay SD & R $417,462 in compensation pursuant to the parties’ stipulation (the municipality reserving its right to appeal the issue of liability). This figure represents $265,000 in compensation (approximately $33,120 per lot), $121,121 in prejudgment interest, $4,322 in costs and $22,928 in attorney’s fees.

6 . The Fifth Amendment to the United States Constitution provides, in part: "nor shall private property be taken for public use, without just compensation."

7 . In 1986 Lucas bought two residential lots on a South Carolina barrier island, intending to build single-family residential homes similar to those already constructed on neighboring parcels. In 1988 South Carolina enacted the Beachfront Management Act which directly prohibited Lucas from erecting any permanent habitable structures on his parcels. Lucas filed suit alleging that the Act deprived him of all economically viable use of his property and constituted a taking under the Fifth Amendment. The trial court held in favor of Lucas, finding that the ban rendered Lucas’s parcels "valueless.” Id., at -, 112 S.Ct. at 2889. On appeal, the South Carolina Supreme Court reversed, holding that when a regulation is intended to prevent harmful/noxious uses of property akin to public nuisances, no compensation is owed under the Takings Clause regardless of the regulation’s effect on the property's value. Id., at-, 112 S.Ct. at 2890.

The United States Supreme Court rejected the South Carolina court’s harmful/noxious use distinction and held that when a regulation prohibits all economically beneficial use of property, compensation is owed unless the regulation merely makes explicit restrictions on the use of property that background principles of the state’s law of property and nuisance already place upon land ownership. Id., at-, 112 S.Ct. at 2896-2902. The Court reasoned that negative regulations such as the Beachfront Management Act, which typically require land to be left in its natural state, are the functional equivalent of physical appropriation from the standpoint of the landowner. Id., at-, 112 S.Ct. at 2894-95.

We conclude that the per se categories enunciated in Lucas have no application to the case at bar because the municipality neither sought to appropriate SD & R’s property nor enacted a regulation constraining SD & R’s use of its property in any way.

8 . This case does not involve a physical seizure of property, pre-seizure activity which may accelerate the date when property is taken as in Ehrlander v. State, Dep’t of Transp., 797 P.2d 629 (Alaska 1990), or an exercise of regulatory authority by the municipality. Rather, it primarily entails action by the municipality as an owner of neighboring property voting to repeal an improvement district. Where a governmental agency merely takes action which is substantially similar to that which could be taken by a private landowner, it seems highly doubtful that a colorable taking claim can be established. See, e.g., 8,960 Square Feet v. State, Dep’t of Transp., 806 P.2d 843, 845-46 (Alaska 1991) (action by state on adjoining railway lands of raising earth berms gave rise to no claim for loss of visibility of landowner’s property since the railroad could have raised its tracks or otherwise obstructed visibility of the land in question for any legitimate reason).

9 . In Homeward Bound, a landowner sued the municipality of Anchorage, seeking, in part, to recover damages equal to the diminution in value of his property during the period that the property was designated as a potential school site. Id., at 613-14. We held that the mere designation of property as a school site was not a concrete indication that the municipality intended to condemn the property and affirmed the trial court’s dismissal of the claim.

10 .In Ehrlander, we adopted the Washington Supreme Court’s four-part test for determining whether a pending condemnation action deprives a landowner of the "most important incidents of ownership." Id., at 634 (citing Lange v. State, 86 Wash.2d 585, 547 P.2d 282, 288 (1976)). Under the Lange test, a "taking” occurs only when (1) marketability of the property is substantially impaired; (2) the condemning authority has expressed unequivocally its intention to acquire the specific parcel of land; (3) the owner acquired the land specifically for subsequent development and sale; and (4) the owner has taken active steps to accomplish this purpose. Id.

11 . In Stewart, owners of vacant unimproved land condemned by the state sought interest running from the date eminent domain proceedings were instituted to the date of payment of compensation. We held that a landowner loses the economic advantages of ownership from the moment an eminent domain action is initiated because the value of the condemned property is determined as of that date by statute. Id., at 1245-47. In reaching this conclusion, we observed that unimproved property is only a desirable economic asset if (1) the property may appreciate in value; and (2) the owner is afforded the opportunity to improve the property toward whatever end he might desire. Id., at 1247.

12 . Cf. Burrows v. City of Keene, 121 N.H. 590, 432 A.2d 15 (1981). In Burrows, a city wanted to acquire part of a landowner’s property for park land and made several offers which the landowner rejected. The city then rezoned the area, designating part of the landowner’s property as an "open-space” zone which precluded any improvements by the landowner. The New Hampshire Supreme Court held this rezoning constituted a "taking” because it unreasonably precluded all beneficial use of the property. See also Peacock v. County of Sacramento, 271 Cal.App.2d 845, 77 Cal.Rptr. 391 (1969) (adoption of severely restrictive zoning ordinance prohibiting both structures and vegetation constituted a taking).

13 .SD & R’s interest in the approved water and sewer districts does not constitute private property subject to the protections of the Takings Clause. Even when assessments have been paid and improvements constructed, courts have generally held that property owners do not have vested rights in municipal improvements. See LaSalle Natl Bank & Trust Co. v. City of Chicago, 128 Ill.App.3d 656, 83 Ill.Dec. 819, 470 N.E.2d 1239 (1984) (holding that revocation of a bank’s sewer connection entailed no appropriation of the bank’s sewers or land and thus did not constitute a taking of private property for public use; court emphasized that the bank had no vested right to sewer connection). See generally 2 Nichols, The Law of Eminent Domain § 6.13 at 6-83 (1990) (weight of authority indicates that landowners who have been assessed for the construction of municipal improvements have no greater right in the improvements than any other taxpayers).

14 . Cf. City of Los Angeles v. Tilem, 142 Cal.App.3d 694, 191 Cal.Rptr. 229, 235 (1983). In Tilem, the city proposed a road widening project which required taking a ten-foot strip along Tilem’s property (Tilem’s property consisted of two lots — one improved, one unimproved). Although the city took no concrete steps to implement this plan, four years later when Tilem made preliminary plans to move a building on the unimproved lot, the city informed Tilem that once the ten-foot strip was condemned, Tilem would no longer be able to conform to the city setback requirements. Thus Tilem did not pursue this project. Tilem’s ability to market the improved lot was also substantially affected because the' city planned to assess Tilem’s property for the full cost of the road widening project (the city’s cost projections for this project ranged from $60,000 to $200,000). The California Court of Appeals held that Tilem was entitled to damages for inverse condemnation because the city's actions had made it impossible for Tilem to develop the unimproved lot and because Tilem’s ability to market the improved lot was significantly impaired. Id., 191 Cal. Rptr. at 233. The court of appeals observed:

It seems obvious to us that formidable obstacles were placed in Tilem’s path in the use of his land. This was not vacant real estate owned and held as a speculative business venture but land that was intended to be developed from the time it was purchased. Once that development became feasible, it was prevented by the City’s actions. The proposed Media Drive widening project, and the activities undertaken by the City in relation thereto, had a clear and measurable effect upon Ti-lem’s property rights.

Id., 191 Cal.Rptr. at 235 (emphasis added). In the case at bar, development was never "feasible" — it was always contingent on the construction of the necessary improvements and the construction of those improvements was itself contingent on the cooperation of adjoining landowners.

15 . SD & R focuses at length on the municipality's failure to conform with Executive Directive 8 (requiring the municipality to follow a special procedure whenever it votes in opposition to the majority of private landowners in assessment balloting). It is undisputed that the municipality did not follow this procedure when it voted to abolish the approved water and sewer improvement districts. However, to the extent that any of the municipality’s actions was improper or beyond the scope of its authority, the proper vehicle to challenge such action is via a motion for mandamus. See, e.g., HFH, Ltd. v. Superior Court of Los Angeles County, 15 Cal.3d 508, 125 Cal.Rptr. 365, 372-73, 542 P.2d 237, 244-45 (1975) (recognizing mandate action to invalidate zoning ordinance; mandate action permits a party suffering from improper governmental action to correct administrative abuse).