When Projected Eminent Domain Litigation Costs Exceed the Value of the Property Acquisition

Eminent domain litigation can be expensive.  Acquiring small strips of property often costs more in legal and appraisal costs than the value of the property itself.  Sometimes public agencies have no choice but to condemn these minor acquisitions, as property owners cannot be found, will not negotiate, or otherwise take unreasonable positions.  But when property owners are willing to reasonably negotiate, public agencies need to think hard about these cost savings and weigh them against setting a precedent for other acquisitions.  

For example, if it will cost an agency $20,000 in legal and expert costs to acquire a $1,000 strip of property, paying anything under $21,000 may be justifiable as an overall cost-savings measure for a one-off acquisition.  But if there are 30 more similar acquisitions to follow, an agency's actions may set a precedent; if the agency is willing to pay $15,000 to settle the $1,000-value strip acquisition the first time, guess what every other property owner is going to demand?  These are not easy decisions.  Moreover, it gets complicated in that agencies face the following issues in negotiating these deals:

  1. Would the exorbitant acquisition payment result in a gift of public funds?
  2. Will the governing agency board approve a settlement at ten-times-plus the appraised value, without any appraisal support?
  3. Will federal or local funding issues come into play, in that "attorneys' fees" costs may not have the same oversight restrictions as "acquisition" costs?

The reason I bring this up is that a recent article in the Modesto Bee caught my eye.  The article, by Kevin Valine, "Eminent domain case costs Modesto $300,000," states that the City of Modesto has agreed to settle an eminent domain action for $120,000 to acquire a strip of property for a road-widening project.  While that may sound expensive for the strip of land, that's minor in comparison to the total out-of-pocket costs for the City.  The total figure is more than $300,000, as the City has paid over $180,000 in legal fees to an outside attorney to represent the City in the eminent domain action.  The property owner stated it was willing to settle the strip acquisition for $100,000 over a year-and-a-half ago.  Now, the City is paying more money for the property, and it also incurred a significant amount of attorneys' fees.  

The City claims the owner's settlement statement is "hogwash," so it's hard to know what was really going on here behind the scenes.  But the situation presents an example of how costs of litigation can easily exceed the costs of the property acquisition.  Each situation is unique, but as eminent domain actions become more expensive for everyone, perhaps we will start seeing more alternative ways to resolve property acquisitions.

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Michael Allen - October 30, 2013 6:10 AM

There is a big difference in condemnation procedures involving public money vs private projects that have eminent domain power. While "administrative settlements" can be utilized on relocation projects, common sense doesn't enter into the picture, since there are hard and fast rules.

On power line or pipeline projects, the initial offers are based upon a "windshield" appraisal and a per cent of the value per acre. Usually the client or the supervisor has a range(usually at or above the actual per acre value of the land) at which the situation changes if the landowner doesn't sign. At this point a specific land appraisal is ordered. In 95% of the time, the appraisal value per acre is much less than the last offer made. Once the appraisal is completed, many projects use the "final offer", which is the last offer made before the appraisal, and if not accepted, then it is immediately followed by the "final, final offer", which is the appraisal offer at much less. This is what goes to court. Yes, you will have the cost of the appraiser and some attorney fees, but usually the landowner will suddenly accept the best offer. I have had cases where title missed a 30' strip of an unidentified landowner and the value of the strip was less than $100, but he was paid $5,000 just to settle. Sometimes you have to look at the economics or the time frame and make the best decision.

N. Steven Levine, PSM, PLS - October 31, 2013 8:34 AM

There are two approaches I have used over the years. The first is to add an incentive payment to the first written offer that brings the amount to 10% over that which a reasonable appraiser could justify. This precludes the property owner from finding an attorney willing to take the case as here in Florida the attorney is paid based up on the benefit he secures for his client in excess of the first written offer.
The second is a risk management/cost aversion report to the condemnor explaining the costs he is to reasonably expect if litigated vs the benefit of a negotiated settlement. That is not to say that an example does not need to be made on occasion, however it does not take more than one or two before the local legal community takes serious notice. As a result of the above, I have been able to attain 90% to 95% settlement rates on a project. Often it depends on the skill and common sense of the agency's Real Estate Manager. Florida has some of the most liberal eminent domain laws in the country in favor of the property owner.

Gideon Kanner - November 2, 2013 9:07 AM

Ah, so the chickens are coming home to roost.

For decades, owners, particularly in small cases (see County of LA v. Ortiz), have been complaining that the cost of litigation can diminish or eat up their "just" compensation. But the judicial response has been "sympathy" but no relief, not even in egregious cases, like Ortiz. The courts, it was said, simply lacked the power to award litigation expenses, absent a statute so providing. At the same time, in non-condemnation cases the California Supreme Court had no trouble awarding litigation expenses to the winner (Serrano v. Priest).

I can't shed a tear over condemnors' plight because in the vast majority of total-take cases they pay nothing. Yes, nothing. They only exchange one asset (money) for another asset (land at its judicially established fair market value), so their balance sheet remains the same, except for transactional costs.

This can lead to problems, but those are no different than those faced by other litigants who have to pay damages and pay their lawyers and experts but get nothing in return.

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