State Ex Rel. Humphrey v. Strom

493 N.W.2d 554, 1992 Minn. LEXIS 346, 1992 WL 371296

• Court: Supreme Court of Minnesota
• Decided: December 18, 1992
• Docket: C4-91-1941, C7-91-1870
• Status: Published

Opinions

WAHL, Justice.

The questions certified in this appeal ask us to determine whether evidence of construction-related interferences and loss of visibility may be taken into account to the extent they affect the market value of the property in determining just compensation in an eminent domain proceeding. We answer both questions in the affirmative.

In October 1986, the State of Minnesota began eminent domain proceedings pursuant to Minn.Stat. § 117.042 (1986) to acquire property necessary for the construction and conversion of Highway 12 to a federal interstate highway, 1-394. The condemnation included a partial taking from an office site owned by respondent Woodbridge Plaza, a Limited Partnership (“Woodbridge”), located on the south side of old Highway 12 in Minnetonka.

On December 31, 1986, the court granted the state’s petition to acquire 13,700 square feet of Woodbridge’s property in fee and 4,371 square feet as a four-year temporary construction easement and ordered the taking and the vesting of title in the state on February 4, 1987. All of the property acquired from Woodbridge was used for construction of the appurtenant frontage road system. Construction of this portion of the project began in April 1987 and was completed in July 1990.

Court-appointed commissioners filed an award of damages, based on evidence presented at hearings, in the amount of $707,-873 for the partial taking. Of this amount $114,688 is for the land taken, $593,185 is for damage to the remainder. Both parties appealed the award to the district court for a jury trial. The state claims the award is excessive and that the damages do not exceed $227,000. Woodbridge claims the award is inadequate, that damages exceed $3 million.

Prior to trial both parties moved for partial summary judgment to obtain expedited judicial review of whether construction-related interferences and loss of visibility may be taken into account to the extent they affect the market value of the property in determining just compensation. The district court granted Woodbridge’s motion to allow the jury to consider evidence of both construction-related interferences and loss of visibility, not as separate items of damage, but to the extent they may bear on the market value of the property after the taking.

The state petitioned the court of appeals for discretionary review of the district court’s order. In addition, the district court certified two questions concerning the admissibility of evidence of construction-related damages and damages involving loss of visibility as important and doubtful under Minn.R.Civ.App.P. 103.3(h). The court of appeals consolidated the appeals and granted discretionary review. This Court granted accelerated review pursuant to Minn.R.Civ.App.P. 118.

Woodbridge is the fee owner of what was originally a 3.75 acre tract abutting the frontage road that was part of the old Highway 12 right-of-way. The area is zoned for commercial or business use and the tract is improved by a three-story, well-maintained, quality office building. The building was built in 1981-1982, is of sound construction, and contains 36,035 square feet of net rentable area. The property is attractively landscaped and improved with a 180 space asphalt parking lot.

Old Highway 12 is one of the major routes connecting downtown Minneapolis with the western suburbs. It is being converted into a “limited access” highway designated as Interstate-394 (1-394). The full project involves the reconstruction of eleven miles of highway and the reconstruction and relocation of both the north and south frontage roads. The construction of the highway and the frontage roads are occurring simultaneously and are jointly funded by federal-state highway funding. The plan now calls for the frontage roads to be turned over to local units of government for operation and maintenance when construction is completed in June 1993.

The construction-related problems visited upon the Woodbridge property are typical of the problems being experienced by other commercial properties located along the length of the reconstruction. For instance, access to many of the commercial enterprises in the area has been seriously disrupted. The location of the access to the Woodbridge property changed many times during the period of construction. The route was often circuitous and inconvenient although it was never completely eliminated.

During the construction period, the occupancy level of the building dropped dramatically, from 91.6% in 1987 to 56.7% in 1988. The occupancy rate remains low — 65% in 1990. The net rental rate also dropped— from $10.59 per square foot in 1987 to $7.90 per square foot in 1988. The rental rate in 1990 was $4.48 per square foot. For the purpose of this pre-trial appeal, we assume that the construction-related interferences caused a temporary reduction in rental income.

In addition, the project has permanently impaired the view and visibility of much of the remaining property. Before construction, the Woodbridge property and its landscaped grounds were fully visible to passing motorists on old Highway 12. Old Highway 12 (1-394) has now been lowered two to six feet in front of the property while the south frontage road has been elevated nine to twenty-one feet. As a result, the visibility of the property to passing motorists on 1-394 has been substantially reduced. However, visibility from the south frontage road has not been affected. For the purpose of this pre-trial appeal only, the parties agree and we assume that the reduction of visibility caused a reduction in the income stream generated by the use of the remaining property, that is also reflected in lower occupancy rates and rental income.

The two questions certified by the district court are these:

1. In a partial taking condemnation action, is evidence of construction-related interferences admissible, not as a separate item of damages, but as a factor to be considered by the finder of fact in determining the diminution in market value of the remaining property?

2. In a partial taking condemnation action, is evidence of loss of visibility to the public traveling on a redesigned highway admissible, not as a separate item of damages, but as a factor to be considered by the finder of fact in determining the diminution in market value of the remaining property.

The certified questions raise the issue of the extent to which the district court may limit evidence that may be considered by a jury in determining the fair market value of a remainder. When a taking of private property by the state occurs, both the state and the federal constitutions require that just compensation be paid.¹ Minn. Cons. art. 1, § 13 provides: “Private property shall not be taken, destroyed or damaged for public use without just compensation therefor, first paid or secured.” This language is broader than the language of the federal constitution: “[N]or shall private property be taken for public use, without just compensation.” U.S. Const, amend. V. In addition, Minn.Stat. § 117.-025, subd. 1 (1986) defines “taking and all words and phrases of like import” to include “every interference, under the right of eminent domain, with the possession, enjoyment, or value of private property.” Thus, the clear intent of Minnesota law is to fully compensate its citizens for losses related to property rights incurred because of state actions.²

Minnesota has followed the “before and after” rule to determine the measure of just compensation for a partial taking. According to this rule, the measure of damages is the difference between the fair market value of the entire piece of property immediately before the taking and the fair market value of the remainder of the property after the taking.³ State v. Casey, 263 Minn. 47, 50, 115 N.W.2d 749, 752 (1962). See also State v. Pahl, 254 Minn. 349, 356, 95 N.W.2d 85, 90 (1959); City of Chisago City v. Holt, 360 N.W.2d 390, 392 (Minn.Ct.App.1985). “To determine the fair market value of property in a condemnation proceeding ‘[a]ny competent evidence may be considered if it legitimately bears upon the market value.’ ” Ramsey County v. Miller, 316 N.W.2d 917, 919 (Minn.1982) (quoting State v. Malecker, 265 Minn. 1, 5, 120 N.W.2d 36, 38 (1963)). See Casey, 263 Minn, at 51, 115 N.W.2d at 752.

To determine the value of property taken in an eminent domain proceeding, the general rule is that “ ‘[sjubject to the caveat that such proof must be competent, relevant and material, evidence of any matter with [sic] would influence a prospective purchaser and seller in fixing the price at which a sale of the property could be consummated may be considered.’ ” City of St. Paul v. Rein Recreation, Inc., 298 N.W.2d 46, 50 (Minn.1980) (quoting 5 P. Nichols, The Law of Eminent Domain § 18.11 (3d ed. rev. 1979)).

In other words, evidence will be admitted concerning any factor which would affect the price a purchaser willing but not required to buy the property would pay an owner willing but not required to sell it, taking into consideration the highest and best use to which the property can be put. Accord Olson v. United States, 292 U.S. 246, 257, 54 S.Ct. 704, 709, 78 L.Ed. 1236 (1934) (“In making that estimate there should be taken into account all considerations that fairly might be brought forward and reasonably be given substantial weight in such bargaining.”). See also Victor Co. v. State, 290 Minn. 40, 44, 186 N.W.2d 168, 172 (1971) (award “considered not as an independent item of loss but as an element of damage affecting the market value of the tract remaining.”). To not admit such evidence causes factors ordinarily considered when negotiating a price for a particular piece of property to be excluded and would result in the determination of a fair market value not of the property at issue but of some nonexistent hypothetical piece of property. See, e.g., State ex rel. State Highway Commission v. Nickerson, 578 S.W.2d 916, 918 (Mo.1979) (Jurors who were told “to value a hypothetical 2.11 acre tract with no change in traffic” were told “to value a tract which did not exist.”).

However, separate factors may not be considered as specific items of loss. Thus, “depreciation of the fair market value operates as the limit of the owner’s recovery.” 4A Julius L. Sackman, Nichols, The Law of Eminent Domain § 14.07 (rev. 3d ed. 1989) [hereinafter Nichols]. In addition, evidence of “diminution in value of only the real estate is relevant.” Hen-drickson v. State, 267 Minn. 436, 447, 127 N.W.2d 165, 173 (1964) (emphasis added). Damages for lost profits, goodwill or income, for instance, are too speculative to be considered because these damages “depends not only on the location of access but on such complex and intangible variables as the initiative and industry of the proprietors.” Id.

We address first the question of whether construction-related interferences may be considered by the jury to determine fair market value. The parties have stipulated that, as a result of the changes in access during construction and other factors attributable to construction, such as vibration, noise, and dust, the owner of the property suffered damages during the construction period in the nature of a temporary reduction of rental income which reduction was attributable to construction activities.

According to the state, these construction-related interferences are not compen-sable because they are temporary inconveniences which do not permanently diminish the value of the property; they are general damages which do not differ markedly from the damages suffered by the public at large as a result of the construction of the highways; and they constitute a personal and temporary deprivation to the owner, not damages to the owner’s remaining property. Woodbridge argues that construction-related interferences are factors which a willing purchaser and a willing seller would be influenced by in fixing a price for the remainder of the property immediately after the taking.

We have held that damages sustained “by reason of inconvenience affecting the use and enjoyment of the remainder may be considered by the jury not as an independent item of loss but as an element which affects the market value of the remaining area.” State v. Hayden Miller Co., 263 Minn. 29, 33, 116 N.W.2d 535, 538 (1962). See also Underwood v. Town Board of Empire, 217 Minn. 385, 389, 14 N.W.2d 459, 462 (1944) (“It is well settled that, where part of the owner’s land is taken, resulting inconvenience affecting the use and the enjoyment of the remainder is proper for consideration as affecting the market value of the land after the taking.”).

Construction-related interferences are temporary and any impairment to value is also temporary. However, the “mere fact that injuries will be temporary and incident to the period of construction only is no ground for disallowing recovery, since a purchaser might pay less if he knew such injuries were to be inflicted.” Nichols, supra, at § 14.08. Accord Brakken v. Minneapolis & St. Louis R. Co., 29 Minn. 41, 45, 11 N.W. 124, 126 (1881) (temporary damages allowed to the time of the commencement of the suit).

Nor do we find these construction-related damages to be general damages. In City of Crookston v. Erickson, 244 Minn. 321, 325, 69 N.W.2d 909, 912-13 (1955), this court set out the rule that “in cases where there is a partial taking, the injured owner is not required to show that the injury is peculiar to his remaining property. It is sufficient that the damage is shown to have been caused by the taking of part of his property even though it is damage of a type suffered by the public as a whole.” See Underwood, 217 Minn, at 390, 14 N.W.2d at 462 (decrease in market value “is the particular respect in which the deprivation causes damage for which compensation is allowed.”). See also Nichols, supra, § 14.11 (“Where part of a tract has been taken for a highway or for a railroad, the inconvenience or discomfort resulting from construction and operation of such project is an element which may be considered in ascertaining the extent to which the market value of the remainder area has been depreciated.”).

The state argues, on a policy level, that to allow admission of evidence on construction-related interferences on the issue of market value would make highway projects prohibitively expensive. This is not a reason to under-compensate abutting landowners. Furthermore, we agree with the California court in Volunteers of America that: “Any consideration of [means of transportation other than by private automobile] is clouded if the true economic burden of providing freeways for motor vehicle travel is concealed by requiring adjacent owners to contribute more than their proper share to the public undertaking.” People v. Volunteers of America, 21 Cal.App.3d 111, 128, 98 Cal.Rptr. 423, 435 (Cal.Ct.App.1971).

We answer the first certified question in the affirmative: In a partial-taking condemnation action, evidence of construction-related interferences is admissible, not as a separate item of damages, but as a factor to be considered by the finder of fact in determining the diminution in market value of the remaining property.

The second certified question asks whether, in a partial-condemnation action, evidence of loss of visibility to the public traveling on a redesigned highway is admissible, not as a separate item of damages but as a factor to be considered by the finder of fact in determining diminution in market value of the remaining property.

Both parties agree, in the stipulated facts, that the visibility of the subject property to passing motorists on the main traveled east and west bound lanes of T.H. 12/1-894 has been significantly reduced with the construction of 1-394, though visibility from the south frontage road has not been significantly affected. Both parties agree, for the purposes of the partial summary judgment only, that the reduction of visibility from the main-traveled lanes of east and west bound T.H. 12/1-394 has resulted in a reduction in the income stream generated by the use of the remaining property which may be reflected in occupancy rates and rental income for the subject property.

The question of whether loss of visibility is ever compensable in an eminent domain proceeding in Minnesota is an issue of first impression. The value of any commercial property is dependant in part on its location and sometimes on its visibility:

“Items such as view, access to beach property, freedom from noise, etc. are unquestionably matters which a willing buyer in the open market would consider in determining the price he would pay for any given piece of real property. Con-cededly such advantages are not absolute rights, but to the extent that the reasonable expectation of their continuance is destroyed by the construction placed upon the part taken, the owner suffers damages for which compensation must be paid.”

Volunteers of America, 21 Cal.App.3d at 122, 98 Cal.Rptr. at 431 (quoting Pierpont Inn, Inc. v. California, 70 Cal.2d 282, 74 Cal.Rptr. 521, 530, 449 P.2d 737, 746 (1969)).

Most jurisdictions that have considered the question of whether evidence of loss of visibility from a public roadway is admissible to show a diminution of market value have concluded that it is admissible in certain instances. The reasoning we find most persuasive is that of the Alaska Supreme Court in 8,960 Square Feet v. Dept, of Transp., 806 P.2d 843 (Alaska 1991). There the court reasoned that, although a property owner “has no right to an unobstructed line of vision to his property from anywhere off of his property, absent an easement of some sort, [the] ownership of land abutting on a road gives the owner the right to control the visibility of all adjoining land further off the road.” Id. at 846. Therefore, when loss of visibility is caused by changes made on the parcel taken by the state, the state must pay extra for this important commercial asset. Id. The court concluded “the best position is that loss of visibility is compensable in an eminent domain proceeding where the diminished visibility results from changes on the property taken from the landowner.” Id. at 848.

We consider this rule most compatible with the compensation provision of our state constitution. Therefore, although the owner of property abutting a highway may, as the state points out, have no com-pensable property right to the continuous and sustained flow of traffic past its property, Recke v. State, 298 Minn. 500, 502-503, 215 N.W.2d 786, 788 (1974), where, as here, the property taken by the state from the abutting owner was used to raise the south frontage road to 21 feet and obstruct visibility from 1-394 to the remaining property, evidence of that loss of visibility may be taken into account when determining the fair market value of the remaining property.

We answer the second certified question in the affirmative, as modified. In a partial-taking condemnation action, to the extent that loss of visibility to the public traveling on a redesigned highway results from changes in the property taken from the owner, evidence of that loss is admissible, not as a separate item of damages, but as a factor to be considered by the finder of fact in determining the diminution in market value of the remaining property.

Certified questions answered.

1 . "Just compensation” must be "a full and perfect equivalent for the property taken.” Monongahela Navigation Co. v. United States, 148 U.S. 312, 326, 13 S.Ct. 622, 626, 37 L.Ed. 463 (1893).

2 . Minn.Stat. § 160.08, subd. 5 (1986), dealing with construction of controlled access highways for public use, requires compensation of owners for "any elimination of existing access, air, view, light, or other compensable property rights.”

3 .Minnesota Jury Instruction Guide 589 accurately reflects the measure of damages for a partial taking:

PARTIAL TAKING — DAMAGES FOR PART TAKEN AND SEVERANCE DAMAGES Just compensation to an owner when only part of a tract or property is taken is the difference between the fair market value of the entire tract immediately before such taking and the fair market value of what is left after such taking. The result of this subtraction is the just compensation to which the owner is entitled for the part taken as well as for the severance damages to the part not taken.

[Give JIG 585 if not previously given.] Jig 585 states:

FAIR MARKET VALUE

In determining the fair market value of the property at the time of the taking, you will consider all facts and circumstances which a buyer and seller in the open market would reasonably consider and which would bear upon the question of the value of the property. Fair market value is the price which the evidence discloses would be paid for the entire property by a buyer who is willing, but not required to buy, to an owner who is willing, but is not required to sell. An owner is entitled to the value of the property for which it may be most advantageously used.