Square pegs, round holes, easy targets: valuing special-use property in eminent domain.
Fair market value is just compensation's standard measure in eminent domain and inverse condemnation. Is fair market value, however, actually "just"? Other standards, such as use value, may better serve the constitutionally mandated just compensation. California's unique approach values churches, schools, and other nonprofit, special-use properties based on replacement cost without depreciation, and it may offer an especially premising standard to measure just compensation. California's approach may be more appropriate to value just compensation for any special-purpose property or other property lacking a relevant, comparable market.
Fair market value constitutes the standard, conventional measure of just compensation in eminent domain. (1) Appraisers obviously rely on, and find useful, the fair market value standard in completing assignments for lenders, investors, and taxing authorities. Fair market value's dominance, however, should not be accepted without question.
Eminent domain, which is "the power of the sovereign to take property for 'public use' without the owner's consent," (2) can raise unique and troubling policy issues. In the context of eminent domain, appraisers should recognize that the fair market value standard may not be fair or even legally appropriate. (3) It is just one of several means to an end--constitutionally guaranteed just compensation.
Problems for fair market value and property valuation arise in eminent domain when a property has a limited resale market or is designed for a special use. Nonprofit, special-use properties (churches, schools, meeting halls) expose a major flaw in eminent domain law. Fair market value, as the standard measure of just compensation, is often simply not just. (4) Value in use, rather than value in exchange, may offer a more defensible standard to determine just compensation for special-use properties. (5)
States such as California, Florida, New York, Illinois, and New Jersey have adopted unique approaches for valuation of churches, schools, and other nonprofit, special-use properties to ensure just compensation. The statutes go beyond fair market value--they call for an award of full replacement cost. For example, California's approach is based not on fair market value, but on the replacement cost without depreciation. (6) In addition, nonprofits may recover lost business goodwill in California and elsewhere. (7)
There are a several reasons behind special valuation for special-use properties:
* Churches, schools, and other nonprofit, special-use properties are often unique or quirky structures.
* Churches, schools, and other nonprofit, special-use properties seldom sell in arm's-length transactions.
* Churches, schools, and other nonprofit, special-use properties are often easy targets for condemnors, since they do not contribute to property tax revenues. (8)
Good arguments also exist for extending this replacement cost approach to other contexts, especially where a court can find that no relevant, comparable market exists. Attorneys representing landowners may consider seeking such a finding whenever the property qualifies as special-use, regardless of whether it is used by a nonprofit.
Conventional Fair Market Valuation of Real Property
Fair Market Value Defined
Fair market value is the price that a willing buyer will pay to a willing seller, and that a willing seller will accept, with knowledge of all possible uses of the property. (9) It assumes the existence of a market in comparable properties--a market that may or may not exist. (10)
Appraisers and courts primarily use three methods to determine fair market value in condemnation cases: (1) sales comparison approach, (2) cost approach, and (3) income capitalization approach. The cost approach has two components: replacement cost and reproduction cost. (11)
All three approaches are market based. The comparable sales approach, also known as the market data approach, considers the value of property deemed comparable to the property being valued. Fair market value is derived from the sale price of comparable properties recently sold on the open market. (12) The cost approach considers the cost to replace or reproduce the property, but it looks to the market to determine appropriate costs and, if applicable, depreciation. (13) The income capitalization approach depends on a capitalization rate to determine value. The capitalization rate is derived from market-based transactions of similar properties. (14)
Is Conventional Fair Market Value Fair?
Fair market value may provide a convenient and practical standard for valuing just compensation. (15) Several courts and commentators have pointed out, however, that fair market value is not always fair or just to property owners. (16)
Can fair market value, an objective standard, ever fully compensate a landowner for a property's subjective value to that landowner? There is a fundamental irony in real property law: all land is supposedly unique. (17) Yet, appraisal theory depends on the principle of substitution, as The Appraisal of Real Estate states, "property values tend to be set by the price of acquiring an equally desirable substitute property." (18)
There is also a fundamental shortcoming in eminent domain law: The Fifth and Fourteenth Amendments to the U.S. Constitution require just compensation and due process. Yet, the fair market value measure may shortchange owners. For example, fair market value offers no compensation for the subjective premium each landowner places on property, transaction costs, personal stress/ disruption, delay, or uncertainty. Fair market value also ignores a property's sentimental value to an owner and its investment value--the value of property to a particular investor based on that investor's investment goals. (19) The value of property based on any of these subjective valuations will vary by person and property.
Problems with Fair Market Value in Valuing Nonprofit, Special-Use Properties
Fair market value as a standard to determine just compensation in eminent domain breaks down frequently in the case of nonprofit, special-use property. (20) There are four main problems for the fair market value standard when it is used to value churches and schools:
1. Little market data may exist for nonprofit, special-use property. (21)
2. Even if market data do exist for nonprofit special-use property, the market may not be relevant. These sales often occur in transactions that are not arm's length. This makes the sales unusable for comparison purposes. Non-arm's-length transactions may occur when (a) the seller or buyer is experiencing financial distress, (b) the seller or buyer is motivated by charitable or nonmonetary impulses, or (c) the seller or buyer has no personal stake in the sale price. (22)
3. Even if a market exists, the data will be hard to compare. Comparison of nonprofit, special-use properties is often impossible. (23)
4. As mentioned previously, nonprofit, special-use properties may be special targets for eminent domain. Moreover, these properties are not on the tax rolls, so they are not generating tax revenues that would be lost by taking the properties. (24)
In light of these circumstances, it may be more appropriate to determine just compensation in eminent domain for special-use properties using a value-in-use standard. Rather than considering what a willing buyer would pay and a willing seller would accept for property given all the uses to which the property could be put, a value-in-use standard would consider what value the property has to its owner for the owner's particular use. (25) The value of the owner's use is especially relevant to special-use properties given that just compensation is intended to place the owner in as good a position as before the taking. (26) An owner is placed in as good a position pecunarily as before the taking if the owner is compensated so as to allow the owner to replace the property and continue the owner's use elsewhere.
Special-Use Valuation Special-Use Property Defined
A special-use or special-purpose property is "a property with a unique physical design, special construction materials, or a layout that particularly adapts its utility to the use for which it was built." (27) The individual qualities of construction or use of a special-use property are not susceptible to having its value proved by standard fair market comparable sales. (28) Special-use properties, therefore, generally possess one or more of the following features: (1) physical design features peculiar to a special-use, (2) no apparent market other than to an owner-user, and (3) no feasible economic alternate use. (29) Examples of special-use properties include schools, churches, clubhouses, and recreational areas (30) as well as transportation corridors/rights-of-way, (31) railroad terminals, (32) and industrial-use properties. (33)
How Different Jurisdictions Tackle the Problem
Several jurisdictions across the country agree that special considerations must be used to reach the just compensation to be awarded for special-use property because such property usually lacks a recognizable market or reliable market value. (34) Both statutes and case law allow alternate methods for determining valuation of these properties; however, "a uniform method of measuring compensation in the taking of special-use properties has never been developed." (35)
Some jurisdictions value special-use property based on the cost to reproduce the property minus depreciation. (36) Other jurisdictions value special use property through income capitalization. (37) The substitute facilities doctrine provides a third method to value special-use property, and it has been used in federal eminent domain matters as well as in a few states. (38) The substitute facilities doctrine provides that "the award of damages will be in an amount sufficient to pay the cost of constructing a substitute or replacement facility and need not necessarily bear any relationship to the market value of the land taken." (39) In fact, the federal substitute facilities doctrine is very similar to the California approach for valuing special-use property in that both downplay the significance of market value. The next section illustrates the application of this approach.
California's Approach: Two Examples
The California legislature has expressly provided special treatment for valuation of nonprofit, special-use property where no relevant, comparable market exists. (40) Just compensation for nonprofit, special-use property is based on replacement cost and is valued by adding together the following costs:
* The cost to purchase land and make it suitable to allow the owner to continue the same nonprofit, special-use, including land value, permits, and design and construction costs for replacement improvements
* The cost to replace similar structures on the replacement land, without taking into consideration any depreciation or obsolescence of the improvements being replaced (41)
* The cost of a temporary facility during construction (42)
In the 1996 case, People ex rel. Department of Transportation v. International Church of the Foursquare Gospel, (43) the Church of the Foursquare Gospel had owned and occupied a church complex in Anaheim, California, for seventy years since its dedication in 1927. The church was one of the oldest continuously operated churches in Orange County and possessed real historical significance to the congregation, the denomination as a whole, and the community. The church structure displayed unique physical attributes, including its historical lighthouse steeple, stained glass, and baptistery. The congregation had no interest in selling the complex. The California Department of Transportation (Caltrans)--the agency responsible for California's freeways, among other things--made a prelitigation offer of $726,000.
At a preliminary bench trial in Foursquare Gospel, the court determined that the jury should hear evidence of a replacement or value-in-use standard. The condemning agency redid its appraisal in light of the court's ruling at the bench trial; however, the agency did not significantly increase the amount of its offer. Ultimately, the verdict and award of litigation expenses totaled $1.9 million: approximately $1.35 million for the real estate and improvements, $100,000 for business goodwill, and $450,000 for litigation expenses.
In the 2006 case, People ex rel. Department of Transportation v. Calvary Deaf Church and Southern California District Assemblies of God, (44) the church owned and occupied a 50,965-square-foot church complex in Riverside, California, for nearly fifty years, during which it developed a strong and hard-earned reputation as a resource for the hearing-impaired community. The church complex itself consisted of a specially equipped sanctuary to accommodate its congregation's disability, a parsonage, a group home, and a duplex used as subsidized housing for selected deaf congregants. The church benefitted from its proximity to the California School for the Deaf. The congregation had no interest in selling to Caltrans. Caltrans sought to condemn the church for the State Route 60/State Route 91/Interstate 215 freeway project.
The church's pretrial motions requested the court to exclude any appraisal testimony that (1) did not treat the church complex as a single, larger parcel; (2) did not value the church complex as a nonprofit, special-use property; (3) was based on a reproduction cost standard; and (4) was based on an erroneous legal instruction to exclude the impact of the church complex's visibility. The case settled favorably for the church before the trial court heard the church's pretrial motions. The motions likely helped spur the settlement.
Caltrans' highest initial offers totaled $1.6 million. The case settled for $4.6 million. Caltrans' appraiser had developed thirty different appraisal scenarios to determine the property's value. Among those scenarios, Caltrans' appraiser had valued the property at $2,330,000 using replacement cost with no depreciation, and at $2,260,000 using reproduction cost with no depreciation. The church's appraiser, however, had used the replacement cost approach and valued the property at $4,420,000.
Based on these examples, where special-use valuation provided just compensation for churches, it would seem appropriate for this approach to be extended to other special-use properties.
A Look at Fair Market Value through the Lenses of Contract and Tort Law
Generally, the ultimate goal in any eminent domain proceeding is of course to determine constitutionally required just compensation. (45) To qualify as truly "just," just compensation must be measured by what the owner has lost rather than by what the agency has gained. (46) The principal underlying the goal of just compensation is to reimburse the owner for the property interest taken and to place the owner in as good a position pecunarily as if the property had not been taken. (47) In United States v. General Motors Corp., (48) the U.S. Supreme Court clarified this by stating, "Only in the sense that he is to receive [the value of the interest taken] is it true that the owner must be put in as good position pecuniarily as if his property had not been taken." (49)
Contract Remedies Theory
Under contract law, if one party breaches a contract, the nonbreaching party is generally entitled to expectation damages. Expectation damages compensate the injured party for the loss of what was "reasonably anticipated from a transaction that was not completed." (50) The damages are based on what the injured party bargained for when entering the contract. The goal is to ensure the injured party receives the benefit of the bargain. Contract damages, therefore, are determined based on the perspective "what if the contract had been performed as planned?" The injured party is only entitled to reasonably foreseeable damages that result from the breach. (51)
Tort Remedies Theory
A tort is "a civil wrong for which a remedy may be obtained, usually in the form of damages" (e.g., negligence, trespass to land, conversion of property). (52) Because torts differ from contracts, the rule for tort damages differs from the rule applicable to actions for breach of contract. (53)
Tort damages are based on actual loss to the injured party from all of the consequences of the wrongful act. The goal is to put the injured party in as good a position as before the tort occurred, whether it could have been anticipated or not. Tort damages, therefore, take the perspective, "what if the tort had not occurred?" Also in tort actions, defendants take plaintiffs as they find them. This means that compensation is awarded based on the specific, unique conditions of each injured party. A defendant is liable for a plaintiff's unforeseeable or even uncommon reactions to the tortious conduct. (54)
Using Contract and Tort Theories of Recovery to Determine Just Compensation
Just compensation's focus on fair market value frames an eminent domain action as a voluntary (contractual) sales transaction, rather than as the tort of conversion of property. Through fair market value, an owner's damages are based on the amount the owner could expect to get for the property through a voluntary market transaction. In this way, fair market value provides a convenient and objective standard to determine just compensation with depreciation. Moreover, fair market value encourages settlement.
Yet, contracts involve voluntary participants. In the United States, we may liken our system of government to a voluntary contract between the government and its citizens, but eminent domain forces property owners to become involuntary transaction participants. Torts, on the other hand, involve involuntary participants and may offer a more appropriate comparison for eminent domain.
As a result, fair market value, which assumes a voluntary market transaction, often does not satisfy the goals of just compensation. Land is assumed unique in other contexts and can trigger the often-elusive equitable remedy of specific performance. In eminent domain situations, however, it is assumed that land is not so unique, and that its value can somehow be determined by comparing it to sales of other land. Fair market value, therefore, frequently ignores certain elements of loss that an owner suffers and generally falls short of putting an owner in as good a position pecuniarily as if the taking had not occurred. (55)
Conclusion: A Modest Proposal
Just compensation may be difficult to achieve in eminent domain actions involving special-use properties. However, the courts have stated, "In each case just compensation is the goal and if rigid application of a rule tends to produce an injustice, the court must deviate from that rule." (56)
This article suggests that to pursue just compensation, courts may hold preliminary hearings regarding which standard--conventional fair market valuation or a special-use valuation method--is more appropriate according to the facts of each case. A tort standard is recommended for determining compensation if any of the following criteria are present:
* Little market data exists
* The market is not relevant to the property sought to be condemned because the sellers are experiencing financial distress, the sellers are motivated by charitable or nonmonetary impulses, or the sellers have no personal stake in the sale prices.
* Even if market data do exist, the data are difficult to compare.
Courts may instruct juries to use a tort measure of damages as appropriate and where fair market value would not be just. The alternative tort standard of value would permit a jury to value property based on the undepreciated cost of replacement as California uses it to value nonprofit, special-use property.
Internet resources suggested by the Y. T. and Louise Lee Lum Library
California Evidence Code Section 824
California Eminent Domain Report
Church Law Today--Eminent Domain
Worldwide ERC Unique Property Database
h t t p : / /www.worldwideerc.org/Resources/MOBILITYarticles/Pages/0708stephenson.aspx
(1.) See, for example, Cal. Code Civ. Proc. [section] 1263.310 (Deering, LEXIS through 2009 Sess.); United States v. Miller, 317 U.S. 369, 374 (1943); Redev. Agency of the City of Long Beach v. First Christian Church of Long Beach, 140 Cal. App. 3d 690, 697 (Cal. Ct. App. 1983); Hous. Auth. of the City of E. St. Louis v. Kosydor, 162 N.E.2d 357,359 (Ill. 1959); and State of New Jersey v. T'ship of So. Hackensack, 322 A.2d 818,821 (N.J. 1974).
(2.) 1 Nichols on Eminent Domain, Ch. 1, [section] 1.11 (Matthew Bender, 3d ed.).
(3.) For example, see Cal. Evid. Code [section][section] 823, 824 (Deering, LEXlS through 2009 Sess.) and Cal. Code Civ. Proc. [section][section] 1263.320(b), 1263.321.
(4.) See Gideon Kanner, "Unequal Justice Under Law: The Invidiously Disparate Treatment of American Property Owners in Taking Cases," 40 Loy. L.A. L. Rev. (2007): 1065, 1091-1092, which states "fair market value ... excludes factors that individual sellers and buyers in a voluntary market transaction would consider ... Just compensation [using fair market value] means incomplete compensation." See also, Cal. Code Civ. Proc. [section][section] 1263.320(b), 1263.321; First Christian Church, 140 Cal. App. 3d at 697-698; Cal. Sen. Judiciary Committee Background Information 5-5957, S.B. 821; Opening Statement, Cal. S.B. 821 (May 24th version) Senate Boor, May 30, 1991; and Cal. Assembly Committee on Judiciary, S.B. 821 (Petris), as amended: August 20, 1991, date of hearing: July 17, 1991.
(5.) "Use value appraisals often involve limited-market properties, i.e., properties of a type that has relatively few potential buyers at a particular time." Appraisal Institute, The Appraisal of Real Estate, 13th ed. (Chicago: Appraisal Institute, 2008), 27-28. Value in use is the "value of a property assuming a specific use, which may or may not be the property's highest and best use on the effective date of the appraisal," while value in exchange is "attribution of value to goods or services based on what can be obtained for them in exchange for other goods and services." Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 206.
(6.) Cal. Code of Civ. Proc. [section] 1263.321, enacted in 1992, and Cal. Evid. Code [section] 824(a).
(7.) See, for example, Cal. Code Civ. Proc. [section] 1263.510; Cal. Govt. Code [section] 7260(d) (Deering, LEXIS through 2009 Sess.); Relocation Assistance and Real Property Acquisition Guidelines, Cal. Code Regs. tit. 25, [section] 6008(b) (2009), defining business as, among other things, "any lawful activity ... by a nonprofit organization"; and Purcell v. Summers, 145 F.2d 979, 982-985 (4th Cir. 1944), stating no "religious society can live by faith alone but must be supported by contributions from its members." See also, Christian Sci. Bd. of Dirs. of the First Church of Christ v. Evans, 520 A.2d 1347, 1351 (N.J. 1987), recognizing that a church can establish goodwill.
(8.) Cal. Sen. Judiciary Committee Background Information S.B. 821; Opening Statement, Cal. S.B. 821; and Cal. Assembly Committee on Judiciary, S.B. 821. See generally, Martin H. Aaron and John H. Wright, Jr., The Appraisal of Religious Facilities (Chicago: Appraisal Institute, 1997).
(9.) See, for example, The Dictionary of Real Estate Appraisal, 75; Cal. Code Civ. Proc. [section] 1263.320(a); 735 Ill. Comp. Stat. Ann. 30/10-5-60; 26 Pa. Cons. Stat. [section] 703 (Deering, LEXIS through 2009 Sess.); Olson v. United States, 292 U.S. 246, 257 (1934); Sacramento So. R.R. Co. v. Heilbron, 104 P. 979, 981 (Cal. 1909); Pinellas County v. Carlson, 242 So. 2d 714, 716 (Fla. 1970); Kosydor, 162 N.E.2d at 359; Keator v. New York, 244 N.E.2d 248, 249 (N.Y. 1968); and 4 Nichols [section] 12.02.
(10.) Miller, 317 U.S. at 374; and 4 Nichols [section] 12C.01, stating "market value presupposes a willing buyer and willing seller."
(11.) Replacement cost is the "estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised using modern materials and current standards, design, and layout." Reproduction cost is the "estimated cost to construct, at cur rent prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building." Appraisal Institute, The Appraisal of Real Estate, 13th ed., 385.
(12.) Ibid., 141-142, 297-356.
(13.) Ibid., 142, 375-444.
(14.) Ibid., 142-143, 445-558.
(15.) United States v. 564.54 Acres of Land, 441 U.S. 506, 511 (1979), stating "we have recognized the need for a relatively objective working rule ... The Court therefore has employed the concept of fair market value to determine the condemnee's loss."; Miller, 317 U.S. at 374; and First Christian Church, 140 Cal. App. 3d at 697, stating "generally speaking, the most widely used and perhaps most easily applied concept is that of 'fair market value.' "
(16.) See, for example, 564.54 Acres of Land, 441 U.S. at 511-512, acknowledging that fair market value may fail fully to indemnify an owner for his loss, especially if the owner's property is special-use property; United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950), recognizing that using a fair market value standard may "result in manifest injustice"; First Christian Church, 140 Cal. App. 3d at 699, 704, affirming use of reproduction or replacement costs less depreciation method to value church property because fair market value would not achieve a correct result; Kanner, "Unequal Justice Under Law," at 1091, stating "just compensation is judicially defined primarily as fair market value, in such a way that it excludes factors that individual sellers and buyers in a voluntary market transaction would consider ... the judicially formulated measure of compensation inherently excludes a variety of incidental losses suffered by condemnees."; and Gideon Kanner, "Condemnation Blight: Just How Just Is Just Compensation?" 48 Notre Dame L. (1973): 765, 773-776.
(17.) Basurco v. 21st Century Ins. Co., 108 Cal. App. 4th 110, 120 (Cal. Ct. App. 2003), stating "the fundamental maxim that each parcel of land is unique." See also, Cal. Civ. Code [section] 3387, providing it is presumed that "the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation."
(18.) Appraisal Institute, The Appraisal of Real Estate, 13th ed., 39, 298-299; see also Kanner, "Condemnation Blight," at 774.
(19.) Appraisal Institute, The Appraisal of Real Estate, 13th ed., 28-29.
(20.) Kosydor, 162 N.E.2d at 359, explaining that exceptions to the fair market value standard "occur only when property has special capabilities which make it unmarketable at its true value due to unique improvements"; 4 Nichols, [section] 12C.01; First Christian Church, 140 Cal. App. 3d at 697, explaining that fair market value may not achieve the correct result, such as with a church, for "in eminent domain the property owner generally is forced into accepting the price of a market he did not willingly enter because of lack of a desire to sell at any price"); Keator, 244 N.E.2d at 249, explaining that "the character of the [clubhouse and recreational area] is such as not to be susceptible to the rule of fair market value" because "there is no readily recognizable market and testimony as to a fair market price is not usually available."
(21.) First Christian Church, 140 Cal. App. 3d at 697-698, stating "The economic reality of course is that certain types of buildings such as churches are not, as such, regularly bought and sold in the commercial market"; Cal. Sen. Judiciary Committee Background Information S.B. 821; Opening Statement, Cal. S.B. 821, stating that nonprofit, special use properties "do not sell often enough to engender adequate comparison data," unlike more standard commercial or residential properties which sell often.; 4 Nichols, 12C.01.
(22.) Cal. Sen. Judiciary Committee Background Information S.B. 821; Opening Statement, Cal. S.B. 821.
(23.) Ibid., stating "nonprofit, special-use properties are distinctly individual."
(24.) Ibid. The committee observed that in California "the paucity of relevant, comparable market data makes them difficult to value---easy targets for low purchase offers."
(25.) Appraisal Institute, The Appraisal of Real Estate,13th ed., 27, and The Dictionary of Real Estate Appraisal, 5th ed., 206.
(26.) So. Pac. Transp. Co., 84 Cal. App. 3d at 324; see also 564.54 Acres of Land, 441 U.S. at 510; and Miller, 317 U.S. at 373.
(27.) Appraisal Institute, The Dictionary of Real Estate Appraisal, 184. See also Cal. Code Civ. Proc. [section] 1235.155, providing nonprofit, special-use property is "property which is operated for a special nonprofit, tax-exempt use," but does not include property owned by a public entity.
(28.) 5 Nichols, [section] 18.06. See, for example, Appraisal Institute, The Appraisal of Real Estate, 13th ed., 28; J. D. Eaton, Real Estate Valuation in Litigation, 2nd ed. (Chicago: Appraisal Institute, 3.995), 227.
(29.) Eaton, Real Estate Valuation in Litigation, 227, citing George L. Schmutz, Condemnation Appraisal Handbook, rev., Edwin M. Rams, ed. (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1963), 163.
(30.) Appraisal Institute, The Appraisal of Real Estate, 13th ed., 28.
(31.) See, for example, People ex rel. Dep't of Transp. v. So. Pac. Transp. Co., 84 Cal. App. 3d 315, 326 (Cal. Ct. App. 3978), analyzing the cost or reproduction method to value a transportation corridor.
(32.) See, for example, Lake Shore & Mich. So. Ry. Co. v. Chi. & W. Ind. R.R. Co., 3.00 III. 21, 33 (3.881), finding a railroad terminal a special use to which fair market value would not apply.
(33.) See, for example, City of Commerce v. Nat'l Starch & Chem. Corp., 3.18 Cal. App. 3d 1, 3.5 (Cal. Ct. App. 1981), recognizing that use of the property for an adhesives manufacturing facility rendered it a special-use property.
(34.) Dep't of Transportation v. Byrd, 273 So. 2d 400, 403. (Fla. App. 1973). See also Miller, 33.7 U.S. at 374, stating where property has no market, "resort must be had to other data to ascertain its value"; and Keator, 244 N.E.2d at 249, stating where the character of the property is not susceptible to the rule of fair market value, "an award based on the actual or intrinsic value would be proper, i.e., the current cost of reproduction less depreciation." See, for example, First Christian Church, 140 Cal. App. 3d at 698; City of Chicago, 228 N.E.2d at 306-307, concluding that the taking of public school property presented a special situation precluding market value testimony; and Township of South Hackensack, 322 A.2d at 821-823, explaining that for special use property, such as roadbeds, determining fair market value is inappropriate because roadbeds are not customarily bought and sold.
(35.) Eaton, Real Estate Valuation in Litigation, 228.
(36.) See, for example, First Christian Church, 140 Cal. App. 3d at 698, a pre-California Code of Civil Procedure section 1263.321 case using replacement/reproduction cost minus depreciation as the means to value church property; Trinity Church in the City of Boston v. John Hancock Mutual Life Insurance Co., 502 N.E.2d 532, 536 (Mass. 1987), a non-eminent domain case requiring valuation of church property, which court characterized as special-use property and valued through cost of reproduction less depreciation; and In re County of Suffolk, 392 N.E.2d 1236, 1238 (N.Y. 1979), using the cost approach consisting of land value plus replacement cost of the property minus depreciation.
(37.) See, for example, United States v. Certain Interests in Property in Cumberland County, 296 E2d 264, 269-270 (4th Cir. 1961), using the income capitalization method to value rental housing property; Coeur d'Alene Garbage Service v. City of Coeur d'Alene, 759 P.2d 879, 884 (Idaho 1988), using the income capitalization method to measure just compensation of garbage service routes when the city excluded the garbage service from continuing its business in an annexed area; Sanitary District of Chicago v. Pittsburgh, Ft. Wayne & Chicago Railway, 75 N.E. 248, 252 (Ill. 1905), affirming admission of evidence regarding the extent of the business done at the railroad terminal station as evidence of property's value; and State Roads Commission of Maryland v. Novosel, 102 A.2d 563, 565 (Md. App. 1954), affirming admission of evidence of income from the property to value lessees' interest in rental property.
(38.) See, for example, City of Chicago, 228 N.E.2d at 187, providing the substitution approach--consisting of the cost to purchase land and construct substitute facilities--may be used to value condemned public school property; T'ship of So. Hackensack, 322 A.2d at 823, holding that the substitute facilities doctrine applies when the state or another condemnor takes property that is already devoted to some public use by a municipality or other agency of government.
(39.) T'ship of So. Hackensack, 322 A.2d at 821. See also, United States v. 50 Acres of Land, 469 U.S. 24, 30 (1984), holding that the substitute facilities doctrine is not available to value just compensation of a public condemnee's land when market value is ascertainable; and City of Chicago, 228 N.E.2d at 187, holding that the substitution approach consisting of the cost to purchase land and construct substitute facilities may be used to value condemned public school property.
(40.) Cal. Code Civ. Proc. [section] 1263.321; Cal. Evid. Code [section] 824. See also 1 Norman E. Matteoni and Henry Veit, Condemnation Practice in California, 3rd ed. (Oakland: Continuing Education of the Bar, 2009), 180-183.
(41.) Cal. Evid. Code [section] 824,(a), (b). Because California's method of valuing special-use property described in section 824 disregards depreciation, it is not a true measure of fair market value.
(42.) See Cal. Code Civ. Proc. [section] 1263.510; Cal. Govt. Code [section] 7262.
(43.) Orange County Super. Ct. Case No. 752107 (1996).
(44.) Riverside County Super. Ct. Case No. RIC 398480 (2006).
(45.) First Christian Church, 140 CaI.App.3d at 697.
(46.) Ibid., stating "[Just] compensation is to be measured by what the owner lost and not what the condemner has gained." (emphasis in original); and So. Pac. Transp. Co., 84 Cal. App. 3d at 324, stating just compensation is measured by "what the owner has lost rather than that what the condemner has gained." See also, 564.54 Acres of Land, 441 U.S. at 510, 512, referring to just compensation as a "principle of indemnity"; and Boston Chamber of Commerce v. City of Boston, 217 U.S. 189, 195 (1910), stating just compensation "merely requires that an owner of property taken should be paid for what is taken from him. It deals with persons, not with tracts of land. And the question is what has the owner lost, not what has the taker gained."
(47.) So. Pac. Transp. Co., 84 Cal. App. 3d at 324. See also 564.54 Acres of Land, 441 U.S. at 510; and Miller, 317 U.S. at 373.
(48.) 323 U.S. 373 (1945).
(49.) Miller, 317 U.S. at 379.
(50.) Bryan A. Garner et al., eds, Black's Law Dictionary, 7th ed. (St. Paul: West, 1999), 394. See also Lisec v. United Airlines, Inc., 10 Cal. App. 4th 1500, 1503 (Cal. Ct. App. 1992), stating that "in the law of contracts the theory is that the party injured by breach should receive as nearly as possible the equivalent of the benefits of performance." (Emphasis added.)
(51.) Cal. Civ. Code [section] 3300 provides, "For the breach of an obligation arising from contract, the measure of damages ... is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom." See also, Brandon & Tibbs v. Kevorkian Accountancy Corp., 226 Cal. App. 3d 442, 455-456 (Cal. Ct. App. 1990), stating that an injured party's damages for "breach of contract should be such as would fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it." (quoting Hadley v. Baxendale, 156 Eng. Rep. 145 (Exch. Div. 1854)); and 1 B. E. Witkin, Summary of California Law, 10th ed. (West, 2005), 957-958.
(52.) Black's Law Dictionary, 1496.
(53.) 6 Witkin, 1022.
(54.) Cal. Civ. Code [section] 3333 provides, "For the breach of an obligation not arising from contract, the measure of damages...is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not." See also, Benn v. Thomas, 512 N.W.2d 537,539-540 (Iowa 1994), stating that once a plaintiff establishes the defendant caused injuries, liability is imposed "for the full extent of those injuries, not merely those that were foreseeable to the defendant"; 6 Witkin, 1022, stating that in tort actions, "damages are normally awarded for the purpose of compensating the plaintiff for injury suffered, i.e., restoring the plaintiff as nearly as possible to his or her former position, or giving some pecuniary equivalent"; and Garner, 533, stating that "a defendant is liable for a plaintiff's unforeseeable and uncommon reactions to the defendant's negligent or intentional act."
(55.) 564.54 Acres of Land, 441 U.S. at 511-512; Commodities Trading Corp., 339 U.S. at 123; First Christian Church, 140 Cal. App. 3d 690; Kanner, "Unequal Justice Under Law," 1093-1095, stating, when property owners argue that the law should take into account their particular economic situations, i.e., that they should be justly compensated for the demonstrable individual economic losses suffered by them as a result of the specific impact of the taking in issue, the courts respond with the rule that property must be valued as it would be by the market in general, without tailoring damages to the compensatory demands of a particular owner's losses inflicted by the condemnation; and Kanner, "Condemnation Blight," 773-787.
(56.) So. Pac. Transp. Co., 84 Cal. App. 3d at 325.
John C. Murphy, JD, is the managing partner of Murphy & Evertz LLP in Orange County, California, an eminent domain boutique law firm. His legal practice focuses on eminent domain, inverse condemnation, and other complex jury trials. He represents a wide variety of public agencies, corporations, and landowners, and has been featured in stories in the Los Angeles Daily Journal and Verdicts and Settlements. Murphy is a Fellow of the American Bar Association, and he has made numerous presentations on trial tactics in eminent domain for the American Law Institute, the American Bar Association, and the International Right of Way Association. He currently serves as co-chair of the Programs Subcommittee of the American Bar Association Litigation Section Committee on Expert Witnesses, and he is a member of the Dean's Council of the Chapman University School of Law. Murphy received his B.A. from the University of California, Riverside, and his J.D. from the University of Southern California Gould School of Law. Contact: email@example.com
Emily L. Madueno, JD, is an associate with Murphy & Evertz LLP. Madueno focuses her practice on eminent domain and inverse condemnation matters. She received her J.D. from Loyola Law School, Los Angeles, and her B.A. from California State University, Northridge. Contact: firstname.lastname@example.org
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|Author:||Murphy, John C.; Madueno, Emily L.|
|Date:||Jun 22, 2010|
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