SJR 271/HJR 491

Joint Subcommittee Studying Eminent Domain Issues

August 24, 1999, Manassas

The third meeting of the joint subcommittee focused on issues relating to condemnations for state highway purposes. Additional information was also provided regarding the extent to which other states provide for condemnors to pay condemnees' litigation expenses.

Making Just Compensation Just

A professor of law emeritus at Loyola University of Los Angeles provided the joint subcommittee with a scathing critique of current eminent domain jurisprudence. The constitutional requirement that just compensation be paid as a condition of a taking of private property for public use "bears little relation to reality." The compensation awarded by courts falls short of being just. Eminent domain thus remains a "dark corner of the law."

While averring that the award of just compensation is to put condemnees in the same pecuniary position they would have occupied had there been no taking, courts nonetheless refuse to compensate property owners for certain demonstrable elements of loss, including business losses and litigation expenses. This anomaly was described by the professor as "particularly morally intolerable" in the context of current redevelopment condemnations, which are often not for any real public use but rather for private enrichment of other private businesses.

The speaker attributed this "ethical and logical mess" to the historical development of American eminent domain jurisprudence. During the 1950s, condemnation activity increased dramatically, due largely to interstate highway construction and neighborhood redevelopment projects. In response, Congress enacted legislation requiring payment of certain relocation expenses. However, these payments are rarely sufficient to allow one-location business proprietors to relocate and reopen.

Several states have legislated changes to provide compensation for business losses. In most states, a tenant operating a business on condemned land is entitled to the value of his leasehold estate if his rent was below prevailing market rates. Other than statutory relocation expenses, there is no compensation for the value of his business, despite the fact that business goodwill or going concern value is recognized as a valuable asset for purposes of taxation, divorce and business torts.

With respect to reimbursement of the condemnee's litigation expenses, the professor stressed that a citizen should not have to pay to prove the government wrong. The defendants in an eminent domain proceeding have not done anything wrong and have been dragged into litigation against their will.

Responding to a question by Senator Watkins, the professor observed that Virginia's eminent domain laws are similar to those of many other states about 50 years ago. Changes in eminent domain laws have been enacted in response to concerns that have surfaced as condemnations have increased. In past decades, the centers of eminent domain litigation were in the northeastern states and Florida. Recently, rapid growth in southeastern states has accelerated condemnations and condemnation-related disputes. Consequently, Virginia and other states are revisiting their eminent domain laws. The professor praised Louisiana's re-write of its condemnation laws as progressive legislation requiring landowners to be compensated for the full extent of their loss. He also praised Kansas legislation that requires landowners to be paid 125 percent of the fair market value if the taking ultimately is for a private use. With respect to declines in value of property resulting from the destruction of a view caused by a project developed on nearby property, he suggested that the damage should be compensable if the activity would constitute a nuisance at common law.

Recovery of Litigation Expenses

Since the 1970s, most states have enacted legislation requiring condemnors to reimburse condemnees for attorneys' fees, expert witness fees, and other litigation expenses. However, the circumstances under which condemnees may recover these fees vary widely. Most states, including Virginia, require the condemnor to pay the landowner's attorneys' fees if the condemnor dismisses the condemnation proceedings, is held not to be authorized to condemn the property, or is successfully sued in an inverse condemnation action. States' adoption of legislation requiring reimbursement of litigation expenses followed enactment of federal legislation in the 1970s that conditioned receipt of federal funds for certain projects upon state adoption of laws requiring payment to condemnees of costs, as well as relocation expenses.

Far fewer states allow landowners to recover their legal and appraisal fees in litigation over the value of property taken or the amount of damage to the residue. The bases for reimbursing landowners for litigation expenses include express state constitutional provisions (Montana), court interpretations of constitutional requirements for payment of just compensation (Florida), court decisions that the duty to pay the condemnee's costs includes his litigation expenses (Idaho), and legislation requiring payment of such fees. State legislation requiring payment of litigation expenses may encompass fees of appraisers and other expert witnesses but not attorneys (Connecticut). Moreover, states may provide for payment of litigation expenses by some condemnors but not others (North Carolina). Some states that allow condemnees to recover litigation expenses cap the amount that may be awarded (Indiana) or set it at a percentage of the benefit to the condemnee (Florida).

Under the Federal Equal Access to Justice Act, a condemnee may recover costs and attorneys' fees in federal eminent domain proceedings if he is the prevailing party. In addition, fees will not be awarded if the court determines that the government's position was substantially justified.

Fourteen states require the condemnor to pay litigation expenses when litigation over valuation results in greater compensation to the condemnee. In some states, payment of such expenses is required if the award is greater than the condemnor's offer by any amount; in other states, payment is triggered if the award exceeds the condemnor's offer by 10, 15 or 20 percent.

In eight states, courts have the discretion to award litigation expenses to condemnees in valuation disputes. The circumstances when such discretionary awards may be made range widely. For example, in Delaware they may be granted if the award is closer to the valuation evidence provided by the condemnee than to the condemnor's offer, though they may be denied if the condemnor's position is found to be substantially justified. In California and New York, courts are given much latitude in determining whether the positions of the parties were reasonable or whether the award of fees is necessary to achieve just and adequate compensation.

A handful of states allow condemnees to recover fees of expert witnesses, including appraisers, but not attorneys' fees. Virginia, for example, gives courts discretion to tax as a cost a fee for a survey by the landowner, not to exceed $100. The standard for awarding expert witness fees and attorneys' fees may be different. In Florida, for example, reasonable experts' fees are compensable in all cases, while attorneys' fees are paid only if, and by a percentage of the amount by which, the final judgment exceeds the condemnor's offer.

Half of the states do not provide for payment of attorneys' fees in valuation disputes, though most require their payment in case of abandoned condemnations, bad faith by the condemnor, or other specified circumstances.

Requiring the condemnor to pay a condemnee's litigation expenses may increase the cost of land acquisition while reducing the percentage of acquisitions acquired by negotiated purchase. In Florida, for example, where total right-of-way expenditures totaled $330 million in fiscal year 1988, almost $35 million was spent on landowners' attorneys' fees and $9 million was spent on landowners' appraisers' fees.

After Florida began requiring the condemnors to pay the litigation expenses of the condemnees, the percentage of properties acquired by purchases was reduced from 90 percent before 1950 to 20 percent by 1957. A study in the mid-1970s concluded that the state data failed to reflect any clear pattern between those that pay such fees and those that do not. Some states paying fees had a more favorable record of acquiring land by voluntary purchase than those that did not. A review of states that had recently adopted legislation requiring payment of attorneys' fees indicated, though not conclusively, that the percentage of parcels acquired by negotiations will decline, but not significantly, upon the adoption of such a provision.

Acquisitions for State Highway Projects

The head of the Department of Transportation's Right of Way Division provided the joint subcommittee with an overview of the procedure used by the Commonwealth in acquiring land for highway projects. The procedures followed by the department exceed the minimum safeguards required by state statutes in several instances. Though the Code is silent as to what must be included in an appraisal, VDOT complies with provisions of federal law. While the state does not require its appraisers to be licensed, VDOT requires its appraisers, including staff and consultants, to be licensed.

Condemnation appraisals require the appraisers to have an engineering background and knowledge of construction procedures. After an appraisal is completed, a VDOT representative visits the property owner, explains the project's engineering features, provides copies of plans, and answers questions. The only time VDOT has to use the eminent domain power, according to the department's representative, is when the owner's expectations are unreasonable or title defects exist. Of the 3,500 parcels acquired annually, 80 percent are purchased by agreement before an attorney is appointed. After an attorney is brought in, two-thirds of the remaining 20 percent are resolved by negotiation.

The VDOT representative acknowledged that some improvements can be made to the process. It was also acknowledged that some unease regarding eminent domain procedures is due to the fact that condemnations involving federal or state funds must comply with the panoply of procedural safeguards incorporated in the Uniform Relocation Assistance Act. Conversely, condemnations by private entities and by local condemnors for projects not using federal funds are not required to comply with the Uniform Act.

Among the areas for the improvement cited is the payment of relocation expenses for displaced businesses. Currently, businesses can receive relocation expenses of between $10,000 and $20,000. This cap may not allow full compensation of relocation expenses in many cases, and VDOT does not have the same flexibility to exceed the cap on business relocation expenses that it has with residential relocations. This issue is currently being studied by VDOT under HJR 490. Other issues of possible review include (i) requiring prompt payment to landowners of sums agreed upon as compensation for takings and (ii) replacing the current commissioner system, where each side selects six members, with a jury system.

Aside from the issue of business relocation expenses, discussion centered on payment of compensation for business losses. Currently, condemnors must pay the fair market value of property taken, and the value of a tenant's business conducted on the site is not relevant to the value of the property, other than to consider the rent paid to the owner for use of the property. Senator Watkins voiced concern that any compensation for business losses should not be paid from transportation trust funds.

An Appraiser's Perspective

An appraiser who has conducted appraisals in condemnation cases for both landowners and condemning agencies for over 30 years noted two distinguishing difficulties in eminent domain valuations. First, many appraisers do not want to conduct condemnation appraisals because of the possibility that they will have to testify in an adversarial court proceeding. Second, partial acquisitions in road right-of-way cases require valuations of the residue parcel. This can be difficult because the imposition of the road often leaves the property configured differently than parcels that might be used as comparable sites. As a result, there is greater opportunity for appraisers to disagree on the value of the residue.

The appraiser advocated increasing the use of mediation in eminent domain matters. At times, appraisals may not be correct, or owners may have an unrealistic view of their property's worth. Regardless of the reason the parties have not agreed upon the land's value, mediation offers the opportunity to answer questions and to focus on the basis for each party's opinion regarding valuation. Involving an impartial third-party mediator may facilitate resolutions and avoid litigation costs.

The current commissioner system was criticized as unfair to Virginia's taxpayers. Objectivity is not possible when the parties nominate the commissioners who will decide the question of compensation. The appraiser reported seeing attorneys nominate the spouses of their employees to serve as commissioners in cases they are trying.

He also opined that the current caps on payments to businesses dislocated by eminent domain are unfair. If an enterprise goes out of business, its payment is capped at $20,000, and if it relocates it is eligible for up to $10,000 for reestablishment costs plus allowances to relocate personal property. When asked about payment of litigation expenses, Barton stated that landowners should be reimbursed for expert witness fees but not attorneys' fees.

Proposed Widening of I-81

VDOT recently unveiled a proposal to widen Interstate 81 from Winchester to Bristol, a 20-year project. The proposal calls for a controlled access area extending 300 feet beyond each highway access ramp. This policy, according to a representative of the Virginia Petroleum Marketers and Convenience Store Association, would force the closure of dozens of businesses. The policy is not required by state law, but it is based on AASHTO guidelines. The representative reported that West Virginia did not use this policy when interstate highways there were recently widened. Though the construction will not commence for several years, the policy is having a chilling effect on retailers within the 300-foot zone.

Public Hearings

July 21, 1999, Salem

The joint subcommittee held a public hearing for citizens of Virginia to voice their concerns about the current state of the law regarding eminent domain. The subcommittee heard from residents of Bland, Botetourt, Franklin, Giles, Montgomery, Roanoke, and Wythe Counties, and the cities of Roanoke and Salem. Citizens shared personal stories about past experiences with the eminent domain process and concerns about potential projects that would require exercise of eminent domain in Southwest Virginia, namely the AEP 765 kV power lines and the proposed I-73 highway. Most speakers also offered suggestions for modifying eminent domain law in Virginia. The theme among all concerns was that current Virginia law does not provide a "level playing field" for condemnor and condemnee.

Process in General

Substantial citizen concerns regarding the eminent domain process in general encompassed the lack of access to information by condemnees and potential condemnees. State appraisals of property are currently confidential and proprietary, and the Commonwealth is exempt from the Uniform Standards for Professional Appraisers Act. Condemnors are not currently required to provide an itemized list of damages when determining the fair market value of a property or damages in a partial taking. Rumors about potential condemnation may circulate, but private citizens have a difficult time obtaining factual information about the truth of any rumors, and properties are therefore difficult to sell under the "cloud" of potential condemnation. Additionally, disclosures that are made to condemnees are difficult for laypersons to understand.

Concerns relating to the condemned property itself included the fear that some easements might be too small. For example, the proposed AEP power line requires 130-foot towers. However, the towers would be centered in an easement only 200 feet wide. Therefore, if a power line fell, it would likely fall outside the area of the easement, potentially damaging additional property. No option exists enabling owners of property to require condemnors to buy their entire property in a taking, rather than condemning part of it for an easement, if the use of the easement will disrupt the remaining land. Many citizens would like to see that option provided in the law. The current eminent domain laws provide the process for condemnation but no requirement that the proposed improvements on the easement be constructed. Another issue involves delays in finalizing highway improvements under the highway department's "quick take" process. One speaker recommended requiring the easement to be used within two years to protect owners from the cloud of condemnation.

Valuation of Condemned Property

Methods for determining the value of condemned property fell under scrutiny from many of the speakers. Currently, sight or view impairment is not taken into account when determining whether a parcel is damaged. The value of a multi-generational homestead is also not considered. Another concern is that the compensation for damages in a partial taking is for the value of damages at the time of the initial taking. No provision of law exists to provide for additional compensation if improvements are made to the easement that cause further damage to the property's value, such as additional power lines within the same space. Finally, owners of property adjacent to the property including the easement are not compensated for the devaluation of their property, since the easement does not touch their property. However, several speakers argued that power lines and highways in close proximity to property, though not touching it, can cause a decline in the property's value, and these owners are not compensated for damages.

Owner Expenses

One area of almost unanimous concern about Virginia's eminent domain laws is that of condemnee expenses in condemnation proceedings. In many cases, condemnees feel that condemnors' initial offers to purchase property are lower than fair market value. However, the condemnation process requires owners to hire and pay for attorneys and appraisers. Most speakers recommended that if the condemnee prevails, receiving a higher amount for the property than the condemnor's offer, the condemnee should receive compensation for attorneys' fees and other expert fees. These fees can be as much as half the condemnation award, and the property owner therefore bears a disproportionate share of the costs of the condemnation process. Lastly, the statutory provision for relocation expenses for small business limits compensation to $20,000. One speaker felt that this amount was insufficient to pay a business for relocating.

Tenant Rights

Three speakers expressed concerns about the lack of compensation to tenants in a taking for tenant-owned improvements to land. These include shopping centers, restaurants or billboards whose owners lease the property. Under current law, there is no obligation for the condemnor or condemnee to give notice to the tenant of the condemnation, nor is there a provision for compensating for the tenant's interest or the value of the leasehold.

August 24, 1999, Manassas

Twenty-three citizens voiced their concerns with Virginia's eminent domain procedures at the joint subcommittee's second public hearing. Most of the concerns expressed involved condemnation by the state Department of Transportation.

Several of the speakers criticized VDOT's "attitude" rather than the state's laws. One citizen noted that if VDOT's personnel were more reasonable in setting property values, both owners and the Commonwealth would save money by avoiding litigation costs. VDOT employees, it was asserted, have the attitude that they are in control and do not listen to citizens.

A spokesperson for Defenders of Property Rights criticized the Virginia Supreme Court's decision in Lamar v. City of Richmond on grounds that it unfairly prevents billboard companies from being compensated for the full going concern value of their business property. The VDOT planning process was criticized by citizens whose properties were devalued by road location decisions. A frequently cited example was Lenten Hall Road, which is having cul-de-sacs built at both ends near its intersection with Route 29. As a result, access to businesses is difficult. This result could have been avoided and under current law the affected landowners are without adequate recourse.

Several speakers decried the displacement of businesses operated by tenants forced to relocate. Sites mentioned included the construction of the I-66-U.S. 29 interchange in Gainesville. At the same intersection, businesses whose property is not being taken, and thus are not eligible for any compensation, will nonetheless be hurt by changes in traffic patterns that impair access and visibility. The relocation expenses offered to displaced businesses fail to approach a tenant's costs of outfitting a replacement site. One speaker was compelled to declare bankruptcy following forced relocation to a less-attractive leased site.

Issues identified by a Fairfax County attorney as needing joint subcommittee analysis included (i) delays in payments under VDOT's "quick take process"; (ii) incomprehensibility of VDOT's drawings; (iii) inadequate briefing of owners as to VDOT's proposed plans; (iv) insufficient reimbursement of business relocation costs; (v) unfairness of the unity of lands doctrine and (vi) condemnation "fright" by which VDOT depreciates property value by threatening condemnation when it lacks funds to acquire the property.

Again and again citizens criticized the judicial prohibition on awarding compensation for loss of future business earnings. Destruction of a business' visibility and accessibility, it was agreed, should also be compensated. Billboard operators, who typically own the sign structure located on land leased from its owner, should be compensated for the market value of the sign, according to a spokesman for the Outdoor Advertising Association. Under current law, tenants are limited in their recovery to a share of the landowner's award for the property taken.

Several landowners criticized what they saw as irrational valuations by VDOT consultants, particularly in the Lake Jackson area. It was suggested that VDOT's condemnation work should be performed by an impartial third party. A change in the current incentive structure, where rewards focus on agency savings, would result in fairer valuations.

An appraiser who has consulted for VDOT noted that, in the majority of cases, VDOT has bent over backwards to be fair to property owners. He suggested three changes to improve the process: (i) replacing the commissioner system with a jury system, (ii) allowing only licensed appraisers to testify in court as to values, and (iii) adopting technical changes to address issues appraisers must deal with, including security of access and median rights.

Other suggestions made by landowners who have been through the comdemnation process include: (i) prohibiting the setting aside of awards for lesser amounts, (ii) allowing attorneys' fees if the award exceeds the condemnor's offer, (iii) ensuring the land is purchased for its fair market value, and (iv) replacing the current system of contracting out VDOT appraisers. Contracting for appraisals creates an incentive for low valuations, because the contractors will want to please the agency by coming in with low valuations. A suggested cure would have each side obtain its own appraiser, who would agree on a third appraiser, with the three appraisers being given the binding power to determine the value.

Future Meetings

The joint subcommittee will hold a public hearing in Newport News on October 6. Staff was directed to compile a list of recommendations on the issues raised thus far. At a future business meeting, members will be presented with decision options.

The Honorable Madison E. Marye, Chairman
Legislative Services contact: Franklin D. Munyan