Does Condemning Nothing, Cost Nothing?
Posted in Court Decisions

Reflecting on the Golden Age of Saturday Night Live, icons such as Chevy Chase, Bill Murray, Gilda Radner, Steve Martin, Jane Curtin, and Dan Aykroyd jump to mind.  As such, it should come as no surprise that one of my favorite recurring characters has always been Emily Litella.  An old lady who would spend a minute or so railing against some ridiculous topic premised on a mistaken understanding of some headline or story, only to conclude with a sweet "never mind" after the error was pointed out to her.  In a recent per curiam decision by the United States Court of Appeals for the Ninth Circuit, the United States government was able to successfully employ this "never mind" defense in order to avoid any liability associated with a failed eminent domain action.  United States v. 300 Units of Rentable Housing, Case No. 09-35990 (9th Cir. Feb. 14, 2012) (pdf).

In 1984, the Government solicited bids for a military housing project on Eielson Air Force Base.  The project called for the construction of 300 houses on the Base, which the developer would own and lease back to the Air Force for a term of 20 years, in exchange for the Government leasing the real property to the developer for a term of 23 years.  After the contract was awarded, the parties executed a Ground Lease and a Project Lease.  In the Ground Lease, the Government leased the land to the contractor.  In the Project Lease, the contractor agreed to lease the houses back to the Government.  Under the contract, the Government had the option to purchase the houses, renew the Project Lease, or have the contractor remove the houses from the Base.

Flashing forward to 2006, with the expiration date of the Project Lease fast approaching, the Government initiated negotiations for the purchase of the houses.  Three months prior to the expiration of the Project Lease, however, with no agreement apparently in sight, the Government exercised its option to renew for one year.  Hedging its bet, the Government also filed an eminent domain action shortly before expiration of the Project Lease's original term.  In the action, the Government sought to condemn a five-month leasehold interest in the houses.  

The district court eventually dismissed the action, concluding that the Government already owned the interest it sought to condemn as a result of it properly exercising the option to renew.  Polar Star, who had obtained the rights under the contract as a result of the original contractor's default, argued that the renewal notice was defective because it failed to specify the amount of rent and the parties never agreed on the rent for the renewal term.  The district court rejected this argument, finding that the original contract established a method for calculating the amount of rent, and the option clause did not require an agreement on rent prior to renewal.  The district court also declined Polar Star's invitation to rule on the proper amount of rent, or whether there was a de facto taking of its entire interest in the houses, holding that these issues were beyond its subject matter jurisdiction. 

Polar Star appealed, and the Ninth Circuit affirmed on all counts.  With respect to the jurisdictional issues, the Ninth Circuit explained that the district court's jurisdiction was limited to the declaration of taking, and therefore the de facto taking argument had to be asserted in a separate action filed against the United States in the Federal Court of Claims.  And as for the issue of rent, the district court properly refused to rule on that issue because it would have been an unlawful advisory opinion, as it was not necessary to establish a specific amount of rent in order to conclude that the Government had properly exercised the option.  Accordingly, because the Government had mistakenly condemned an interest that it already possessed, Polar Star was entitled to nothing.  

Can you hear old Mrs. Litella: "Oh, we own that interest.  In that case, never mind."  

  • Benjamin Z. Rubin
    Partner

    Ben Rubin assists developers, public agencies, landowners, and corporate clients on a variety of complex land use and environmental matters.  He counsels clients on matters dealing with the Federal and State Endangered Species ...

California Eminent Domain Report is a one-stop resource for everything new and noteworthy in eminent domain in California. We cover all aspects of eminent domain in California, including condemnation, inverse condemnation, and regulatory takings. We also keep track of current cases, project announcements, budget issues, legislative reform efforts, and report on all major California eminent domain conferences and seminars.

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