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Friday, August 31, 2012

Supreme Court of Texas Applies Value-to-the-Taker Rule in Condemnation Case

When a condemning authority exercises its eminent domain power, the Federal and (usually) State Constitutinos require that authority pay fair market value to the property owner for the property taken at the time of taking.  Fair market value is determined by the property's highest and best use of the property, and the property's current use is the presumed highest and best use.  Courts may not include in the fair market value, however the value to the condemning authority, also known as special value to owner, or value-to-the-taker.  The compensation should reflect what the landowner lost, not what the condemnor gained.  Boston Chamber of Commerce v. City of Boston, 217 U.S. 189 (1910).  This value-to-the-taker rule serves to keep an owner from receiving a windfall based on the property's special or unique value to the condemnor.

The Avinger family in Enbridge Pipelines (East Texas) L.P. v. Avinger Timber, LLC,  ___ S.W.3d ___ (No. 10-0950, August 31, 2012) (6-3 decision) owned vacant land in a gas producing area uniquely situation for a gas production plant.  In 1973, the Avinger family leased a 23-acre property to Tonkawa Gas Processing Co., a private concern, for construction of a gas plant.  There were several lease renewals on agreed terms until 2007, when the parties could n on longer agree on renewal terms.  Tonkawa then merged with Enbridge Pipelines, an entity with condemning authority.  Enbridge petitioned to condemn Avinger's interest in the property (all improvements belongs to the gas company); the commissioners awarded Avinger $45,580 at the commissioner's hearing.  Avinger appealed.

At trial Enbridge submitted an appraisal with a value for the Avinger tract being $47,940 on a highest and best use of rural residential construction.  Avinger's expert valued Avinger's interest to be $20,955,000 using a highest and best use as industrial property - gas processing plant.

Avinger's expert included in his valuation that savings to Enbridge by being able to condemn the property.  Because the lease provided that Enbridge could remove the plant from the land and restore the land to its original condition, Avinger's only interest in the property was the vacant land.  However, the expert included Enbridge's cost savings by not having to tear down and relocate the plant; a cost Enbridge saved by condemning the property.  The Court held that because the appraisal includes value-to-the-taker as part of the value of the comdenmee's value, the appraisal should have been excluded.

The Supreme Court also affirmed the appeallate court's decision to affirm the trial court's exclusion of Enbridge's appraiser.  That appraiser established the highest and best use despite the presumtion that the law presumes the property's use for the last almost 40 years would be the highest and best use.  The Court noted the property was uniquely situated for operating a gas plant due to pipelines and roads accessing and crossing the property. 

With both appraisals found wanting, the Court remanded the case back for a new trial, possibly with different appraisers, or at least new appraisal methodologies.  As a general rule, when two appraisals come in with a difference of 43,600%, the red flags should be flying high for any court. 

The dissent reportED that the majority errED by referenceing Avinger's expert report because that report was never admitted into evidence.  The dissent claims the testimony from the appraiser was adequate to affirm the lower court's decisions.  The dissent makes a good point regarding the state of the evidence, perhaps, but their view did not carry the day with the nine justices that mattered.

Craig Estlinbaum

http://lawprofessors.typepad.com/adjunctprofs/2012/08/supreme-court-of-texas-applies-value-to-the-taker-rule-in-condemnation-case.html

Constitutional Law, Interesting Cases, Remedies, Texas Law | Permalink

Comments

It's constitutional and it's understandable, but it's unfair. If the provisions of the VRA are broadly unobjectionable, and I think they are, they should cover the whole country. But the federal court has to take steps to applies for condemnation case in to judgement.

Posted by: Abilena | Sep 3, 2012 2:46:26 AM

The Texas Court could have stuck it to the pipeline company here because the pipeline company gave up their right to forever lease renewals (arguably in exchange for lower rent) 3 years before they condemned. When the pipeline company gave up their right to renewals forever, that created a reversionary interest in the landowner. Complicating the matter was that on the fixed 'date of taking,' the lease agreement had expired by just a few days, triggering a lease provision that required the company to remove their entire infrastructure complex. Under these strange circumstances, the landowner's appraiser found industry investors/experts to testify that they would love to buy the condemned surface interest for 21 million knowing that the pipeline company would hypothetically have to remove their improvements because the investor could then flip the land back to the pipeline company knowing that the company would buy the surface interest back from the hypothetical investor rather than tear down and move the plant to a nearby location. This methodology was a clever attempt to by-pass the value to the taker rule, but the court saw through it. But it would have not have been a problem if the company's legal department was not brain dead when they gave up their renewals forever creating a reversionary interest in the landowner.

Posted by: C. Jackson | Sep 5, 2012 9:54:53 AM

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