WisBar News: Public Utility Loses Takings Case, Court Clarifies “Uneconomic Remnant” Law:

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  • WisBar News
    August
    08
    2013

    Public Utility Loses Takings Case, Court Clarifies “Uneconomic Remnant” Law

    Joe Forward
    Legal Writer

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    Aug. 8, 2013 – A public utility that took easements on private land to build electrical transmission lines must acquire the entire property, because the easements left private landowners with an “uneconomic remnant,” the Wisconsin Supreme Court has ruled.

    Under Wis. Stat section 32.06(3m), an uneconomic remnant is “property remaining after a partial taking of property, if the property remaining is of such size, shape or condition as to be of little value or of substantially impaired economic viability.”

    American Transmission Company (ATC) must also pay relocation expenses incurred by landowners Scott and Lynnea Waller (the Wallers), in addition to substantial litigation costs, because ATC’s taking of their land classified them as “displaced persons.”

    These rulings in Waller v. American Transmission Company LLC, 2013 WI 77 (July 16, 2013), end a legal fight that began in 2006, when ATC obtained authority to upgrade transmission lines near Delavan, and sought easements on the Waller property.

    Both the U.S. and Wisconsin constitutions require government actors, such as public utilities, to pay just compensation for the taking of property for public use. Wisconsin law sets out condemnation procedures, including the law relating to uneconomic remnants.

    The majority (4-2) opinion clarifies that property owners may force a condemnor (a taker) to purchase an uneconomic remnant in a “right-to-take” action if the condemnor does not make a jurisdictional offer that includes compensation to take the remnant. 

    How it Got There 

    During pre-litigation negotiations, ATC’s appraiser said the easements devalued the Waller property by $74,500, a 57 percent decrease. The Wallers’ appraiser said the easements would devalue the Waller property by 88 percent, based on various factors.

    ATC offered the Wallers $49,000, then $84,600, then $99,500 to acquire the easements. The Wallers rejected all three offers.

    The Wallers also rejected ATC’s offer to purchase the entire Waller property for $132,000, the full appraised value, if the Wallers waived a right to relocation expenses.

    Again, the Wallers declined. In 2008, ATC made a jurisdictional offer of $99,500 for two major easements. Wisconsin condemnation law requires a condemnor with eminent domain power to negotiate just compensation before making a “jurisdictional offer.”

    The Wallers contested condemnation on the grounds that ATC’s proposed taking (condemnation) for public use – prohibited without just compensation under the U.S. and Wisconsin constitutions – left them with an “uneconomic remnant.”

    “In short, the Wallers did not argue that the ATC was taking too much, but that ATC was trying to get away with taking too little,” explained Justice David Prosser.

    Under section 32.19(3), a total acquisition of land requires the condemnor to pay “reasonable relocation payments to displaced persons.” ATC had refused to pay those expenses during negotiations, prompting this long-running litigation between the parties.

    A condemnation commission review, the first step in the condemnation process, allowed ATC to take immediate possession of the easements and later awarded the Wallers $90,000 as just compensation for the partial taking. The Wallers appealed.

    Ultimately, after a three-day jury trial, a circuit court awarded the Wallers $94,000 for the easements, concluding that the partial taking did not leave an “uneconomic remnant.”

    But an appeals court reversed, concluding the circuit court failed to consider if ATC’s partial taking “substantially impaired the economic viability” of the Waller property.

    On remand and after another trial, the court concluded that the Wallers were left with an uneconomic remnant, because the taking substantially impaired the property’s economic viability. The court ordered ATC to purchase the remaining land for $47,509.

    The court also awarded $211,261 in litigation expenses and $26,350 in relocation expenses. ATC appealed, and the appeals court certified the case to the supreme court.

    Majority Opinion 

    First, the majority rejected ATC’s argument that condemnors decide whether to take an uneconomic remnant, not the private landowner. Thus, the majority clarified that property owners have a right to bring an uneconomic remnant claim.

    “If a condemnor fails to acknowledge the existence of an uneconomic remnant by describing it and including it in the jurisdictional offer – concurrent with its offer for a taking of other property – the condemnee must have some recourse to assert and prove the uneconomic remnant claim,” Justice Prosser wrote.

    In cases where a condemnor disputes whether an uneconomic remnant claim exists by not including it in the jurisdictional offer, the property owner’s claim should be brought in a right-to-take action under Wis. Stat. section 32.06(5), the majority explained.

    “[A]n uneconomic remnant determination is essential in deciding a right to a partial taking like an easement and should, whenever reasonably possible, precede valuation questions,” Justice Prosser wrote.

    Second, the majority agreed that ATC’s partial taking substantially impaired the property’s economic viability. Thus, it left the Wallers with an uneconomic remnant.

    The majority noted that the existence of an uneconomic remnant “almost always turns on the economic viability of what is left after the taking.” In the Wallers’ case, the majority noted, the taking would severely restrict industrial or residential use.

    “In other words, the size, shape, and condition of the Waller property is of substantially impaired economic viability as either a residential or light industrial parcel, and it is therefore an uneconomic remnant,” Justice Prosser wrote.

    Relocation and Litigation Expenses 

    Under Wis. Stat. 32.28(3)(b), “litigation expenses shall be awarded to the condemnee if … [t]he court determines that the condemnor does not have the right to condemn part or all of the property described in the jurisdictional offer or there is no necessity for its taking.”

    The majority affirmed the trial court’s ruling that ATC must pay litigation expenses because it did not have a right to condemn just part of the property, and the other part – the part deemed an uneconomic remnant – was not listed in the jurisdictional offer.

    ATC argued that it made an offer to purchase the entire property before making a jurisdictional offer for the easements, so it negotiated in good faith. But the majority noted that its offer would have forced the Wallers to give up relocation expenses.

    “Because the Wallers could have been made whole only by a jurisdictional offer that included relocation benefits, accepting ATC’s offer would have shortchanged the Wallers, and awarding litigation expenses furthers the purpose of the statute,” Justice Prosser explained.

    Finally, the court upheld an award of relocation expenses because the Wallers were considered “displaced persons” under Wis. Stat. section 32.19(3), which provides for payments to persons who are displaced by public projects.

    ATC argued that the Wallers were not forced to leave. But the majority ruled that the statute does not require “forced” displacement, only that persons move as a direct result of the government’s taking. The Wallers moved when ATC made a jurisdictional offer.

    Dissent 

    Justice Ann Walsh Bradley wrote a lone dissent. She said the majority’s ruling will negatively impact ratepayers and taxpayers, because condemnors may now be required to pay for property they don’t need or want, in addition to relocation expenses.

    She argued that uneconomic remnant claims should be brought in valuation proceedings, and ATC’s taking did not leave the Wallers with an uneconomic remnant.

    Thus, Justice Bradley also argued that the Wallers were not entitled to relocation or litigation expenses, and the litigation expenses it did award were “out-of-proportion.”