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

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.

  • Bradford B. Kuhn
    Partner

    Brad Kuhn, Chair of Nossaman's Eminent Domain & Valuation Group, guides private and public sector clients through complex real estate development and infrastructure projects – particularly with eminent domain/inverse ...

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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