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02-28-11 WS Agenda PacketCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, FEBRUARY 28, 2011 AGENDA 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:30 P.M. Attachments 1. CONVENE CITY COUNCIL WORK SESSION A. Roll Call B. Review Agenda 2. EMINENT DOMAIN Mayor Liz& Hotvet Siakel Woodruff Zerby Engineer's CAF 3. ADJOURN COUNCIL ACTION FORM Department Engineering Council Work Session 02/28/11 Item Number: 2 From: James Landini, P.E. Item Description: Eminent Domain — a tool for Land acquisition for storm drainage Background / Previous Action There are two storm drainage projects that require acquiring land and one storm project that would benefit from acquiring more land to proceed with the projects. One of the projects the owner is in discussion with staff to sell a portion of his property. Two of the projects have stalled due to obtaining a drainage and utility easement. The stalled projects are the rain garden on Echo Road and the road drainage near 26980 Edgewood Rd. For the Echo Road raingarden, staff had verbal consent from the landowner, obtained a plan and easement description. The landowner in the end declined to grant the easement. Building a raingarden within the right of way will not provide much water storage. For the Edgewood Road project, staff has not received any response from the landowner. Staff made two home visits, three phone calls, and transmitted the easement request letter by mail and email. The landowner is not responsive. An option to further the two stalled projects is eminent domain proceedings. The City Attorney, Tim Keane, will provide a primer on who, what, when, where and how. Council Action: MALKERSON GUNN MARTIN LLP 1900 U.S. BANK PLAZA. SOUTH TOWER 220 SOUTH SIXTH STREET MINNEAPOLIS, MINNESOTA 55402 TELEPHONE 612- 344 -1111 FACSIMILE 612- 344 -1414 TO: Mayor Chris Lizee and Members of the City Council Brian Heck, City Administrator James Landini, City Engineer Larry Brown, Public Works Director FROM: Tim Keane, City Attomer� RE: Acquisition of Private Real Property Interests for Public Projects DATE: February 24, 2011 This memo is offered in preparation for the work session scheduled for February 28, 2011, relating to a general discussion of the City's process, duties and responsibilities in undertaking the acquisition of private property for public projects. This discussion will focus on those city projects and undertakings that require acquisition of real estate - a utility easement, additional right of way, public building expansion, stormwater easement or a park expansion, all uses where "public purpose" is clearly established in Minnesota law. I will not address in this discussion the more complex issues of eminent domain authority where the final use may be redevelopment of property or quasi - public use which introduces an entirely different set of issues rising out of the 2005 Kelo decision and its aftermath restricting public condemning authority for redevelopment purposes Please find enclosed the "Eminent Domain Summary Guide" prepared by our office that will walk the reader through the eminent domain process as governed under the Minnesota law. This formal process described in the Guide is often preceded by a discussion of broader project development issues including project timing, land assembly, strategies and opportunities to work with the property owner to reduce or preclude likelihood of eminent domain. I look forward to our presentation and discussion at the council work session on Monday. In the interim, should you have any questions, please contact me at612 -455 -6633. 139908 Eminent Domain Summary Guide I. Authority to Condemn. Eminent domain is the right of the state to appropriate property for public use, with or without the owner's consent. It is not expressly conferred by the federal or state constitutions, but is rather an inherent attribute of sovereignty. State v. Christopher, 284 Minn. 233, 236, 170 N.W.2d 95, 98 (1969); State v. Flaeh, 213 Minn. 353, 356, 6 N.W.2d 805, 807 (1942). However, the authority to condemn is limited by various constitutional and statutory provisions. The state may delegate its authority to condemn. In Minnesota, the Legislature has delegated the eminent domain power to various agencies and political subdivisions of the State, including but not limited to: Cities (Minn. Star. § 465.01); Housing and Redevelopment Authorities (Minn. Stat. § 469.012, subd. lg); Port Authorities (Minn. Stat. § 469.055, subd. 8); and Economic Development Authorities (Minn. Stat. § 469.101, subd. 4). The Legislature has also delegated the eminent domain power to various non - governmental entities, including but not limited to: Utilities (Minn. Stat. § 116C.63); and Railroads (Minn. Stat. § 222.27). The scope of a delegation of the authority to condemn is often limited in some way by the authorizing statute or legislation, and the condemning authority may not exceed these limits. The recipient of a delegation of the eminent domain power may not exercise it "Unless it is able to show legislative authority to do what it is seeking to do... The power must be clearly granted, and every presumption is in favor of the individual landowner." Minnesota Canal & Power Co. v. Koochiching Co., 97 Minn. 429, 435, 107 N.W. 405, 407 (1906). II. The Condemnation Action (Procedural Matters). Minnesota Statutes Chapter 117 governs the procedure for condemnation actions in Minnesota. The attorney for the condemning authority must take care to follow the statutory requirements because failure to do so may result in the dismissal of the petition. See In Re Rapp, 621 N.W.2d 781 (Minn. Ct. App. 2001). Chapter 117 has very little substantive direction. Substantive issues such as the constitutionality of the taking and the determination of just compensation are mostly left to constitutional and common law principles. However, Chapter 117 does provide for a statutory defense that the taking is not "necessary" or "authorized by law." Minn. Stat. § 117.075, subd 2. See Regents of University of Minn. v. Chicago and North Western Trans. Co., 552 N.W.2d 578, 580 (Mimi. Ct. App. 1996). Identify the "Property." In order to condemn property, the condemning authority must describe the property to be acquired. Minn. Stat. § 117.055. This is typically done with a legal description of the property prepared by a surveyor or by reference to lot and block if the property is platted property. Identify all "Owners." The condemning authority must identify all `owners" of the property to be condemned. Owner "includes all persons interested in such property as proprietors, tenants, life estate holders, encumbrancers, or otherwise." Minn. Stat. § 117.025, subd. 3. In practice (except in simple matters), the attorney for the condemning authority should © Malkerson Gunn Martin LLP engage a title company to prepare an owners and encumbrances report. The condemning authority should also engage a company that provides assistance in these types of matters to identify others, such as tenants, who may have an interest in the property. Pitfall: Even if the interested person is not "in the title" that person may be an "owner." Common examples are tenants. Prepare the Condemnation Petition. The condemnation proceeding is commenced by petition to the District Court in the County where the property is being taken. The condemnation petition must describe the property, identify all "owners" and describe the purpose for the condemnation. Minn. Stat. § 117.055. The District Court must approve or deny the petition (based on whether the condemnation is a lawful taking) at what is known as the "petition hearing." The petition must be filed with the District Court, then served on all "owners" no later than twenty days in advance of the petition hearing. Pitfall: In condemnations for transportation purposes, the commenced action cannot be commenced (and hence the petition cannot be served) until the condemning authority obtains an appraisal, provides the appraisal to the owner and negotiates with the owner. This must be completed at least twenty days prior to commencing the action. Minn. Stat. § 117.036 Practice Tip: The petition hearing is scheduled like any other civil matter. The court administrator's office is generally willing to work with the condemning authority to provide an early hearing date. At the petition hearing, the attorney for the condemning authority should be prepared to provide the Court with (a) a proposed order granting the condemnation petition and appointing commissioners and (b) an affidavit of service for all "owners." The "Quick Take" Statute. Under a "traditional" condemnation, title to the property does not transfer to the condemning authority until the action is completed and the attorney records a final certificate "describing the land taken and the purpose or purposes for which taken, and reciting the fact of final payment of all awards or judgments in relation thereto." Minn. Stat. ¢ 117.205. In practice, a traditional condemnation is almost never done. Minnesota has a "Quick Take" statute, Minn. Stat. § 117.042, which entitles the condemning authority to take title and possession of the property prior to the completion of the condemnation action (i.e. the final determination of value). To comply with the statute, the condemning authority must do the following: - Provide the owners ninety days notice by certified mail of an intent to acquire the property by "Quick Take." - Pay the owner, or deposit with the Court, the condemning authority's approved appraisal of value. © Malkerson Gunn Martin LLP - At the petition hearing, the condemning authority should also move the Court for an order transferring title and possession under this statute. Practice Tip: The condemning authority's approved appraisal of value is not final. The owner still has the right to seek additional damages from the Court- appointed commissioners and ultimately the jury. Practice Tip: If the condemning authority is unsure whom to pay, it has the right to simply deposit its approved appraisal of value with the Court for distribution by further order of the Court. If possible, the attorney for the fee owner of the property should try to obtain consent from mortgage companies, tenants and other "owners" to obtain direct payment from the condemning authority in order to avoid a potentially unnecessary motion. The Commissioners Bearings. If the Court grants the condemnation petition, the Court then appoints "three disinterested commissioners, and at least two alternates, to ascertain and report the amount of damages that will be sustained by the several owners on account of such taking." Minn. Stat. § 117.075, subd. 2. The commissioners must view the property. The commissioners must also hear all evidence and testimony presented at a hearing (known as the "commissioners hearings "). Minn. Stat. § 117.085. After the commissioners determine the damages (the just compensation to which the property owner is entitled), the commissioners file their report (known as the "commissioners' report") with the Court. Minn. Stat. § 117.105, subd. 1; Minn. Stat. § 117.155, subd. 1. The condemning authority shall "within ten days after the date of the filing of the report of commissioners, — notify [all interested parties and their attorneys], by mail, of the filing of the report of commissioners setting forth the date of filing of the report, [and] the amount of the award." Minn. Stat. § 117.115, subd. 2. Practice Tip: The owner of the property and the condemning authority should be prepared at the commissioners hearings to present evidence and testimony regarding the damages that are due as a result of the taking. Most commissioners hearings include testimony of the owner and appraiser for the owner, as well as the appraiser for the condemning authority. Other witnesses, such as engineers, architects and real estate brokers should also be considered depending on the type and complexity of the property. Jury Trial After the commissioners hearings all parties have the right to a jury trial. Minn. Stat. § 117.165. The trial is de novo, but the commissioners may be called as witnesses at trial. Minn. Stat. § 117.175, subd. 1. The owner has the burden of proof to establish its damages. Id. Pitfall: Care must be taken to notice the appeal from the commissioners' award within 40 days and then properly serve the notice of appeal as required by Minn. Stat. § 117.145. If an appeal is filed, any other party may also appeal within 50 days of the date the commissioners' report is filed. Id. © Malkerson Gunn Martin LLP Tvpical Condemnation Timeline Day 1 The condemning authority files the petition in condemnation and motion to transfer title and possession with the Court. At the same time, the condemning authority provides required relocation notices and assistance as required by the Uniform Relocation Assistance and Real Property Acquisition Act (42 U.S.C. § 4601, et seq.) and its implementing regulations, as adopted by Minn. Star. § 117.50, et seq. for state and local projects. The petitioner must also record a notice of lis pendens. Minn. Stat. § 117.065. Pitfall: If Minn. Star. § 117.036 applies, the condemning authority should obtain an appraisal and negotiate with owner prior to commencing the action (Minn. Star. § 117.036 applies to condemnations for transportation facilities or purposes, like roads or airports, and imposes certain additional appraisal and negotiation requirements). Note: The condemning authority should start this process well in advance of "Day 1" because most appraisers cannot complete an appraisal in a short time frame. Day 5 Condemning authority obtains from the Court a hearing date to present the petition to the Court. The petition hearing date must be scheduled out far enough to provide sufficient time for the following: a) Service of process. The petition must be served on all affected property owners along with notice of the hearing at least 20 days in advance of the hearing. At the same time, the condemning authority should serve all affected property owners with the 90 -day notice required to take the property by quick - take ( "Quick Take Notice "). Note: Some condemning authorities believe that the quick -take notice can be served prior to the petition. This is an unresolved issue. Practice Tip: If an owner cannot be located after a diligent search, then the condemning authority may file an affidavit describing its efforts to serve the owners and then may publish for three weeks. Service is not complete until the end of the three -week published notice. Thus, the hearing cannot be held for at least 41 days (21 for publication plus 20 days for the advance notice of the hearing). Note that the 90- day "quick take" period also does not start until after publication is complete. Thus, if publication is required the quick take will take i l i days. (NOTE: This timeline assumes publication is not necessary.) Day 25 Service is completed (assuming no need for publication). Days 26 through 90 — Petition hearing. Assuming that there is no objection to the petition, the petition is granted and the Court orders title transferred on day 91 (after service is completed, including publication if required). © Malkerson Gunn Martin LLP Day 91 Title transfers assuming (a) that the above deadlines are met, (b) no publication is necessary, and (c) the Court does not deny the action due to a challenge to the petition. The condemning authority should assume another 15 -day contingency. Day 106 Thus, conservatively, title transfers on Day 106. III. Commissioners Hearing and Judicial Review Timeline (Assuming the District Court Approves the Petition at the Petition Hearing) Day 1 Court appoints "commissioners, and at least two alternates, to ascertain and report the amount of damages that will be sustained by the several owners on account of such taking." Minn. Stat. § 117.075, subd. 2. Day I - 90. During the period prior to the commissioners hearings, the commissioners must take an oath (Minn. Slat. § 117.075) and view the property (Minn. Stat. § 117.085). At the hearings, they "hear the allegations and proofs of all persons" (Minn. Stat. § 117.085) and "make a separate assessment and award of the damages which in their judgment will result to each of the owners of the land by reason of such taking and report the same to the court" (Minn. Stat. § 117.085). Day 90. Commissioners are to file their report of damages with the District Court. Minn. Slat. § 117.105. Note: In practice, the parties, with the approval of the Court, routinely extend the deadline for commissioners to file their report. The rest of this timeline, however, assumes that the report is filed on Day 90. Day 100. No later than 10 days after the filing of the commissioners' report, the condemning authority must provide notice to all interested parties of the filing of the report. Minn. Stat. § 117.115, subd. 2. Day 100 - 140. Within 40 days of the date the commissioners' report is filed, any party may appeal to the District Court. Minn. Stat. § 117.145. Any other party may cross- appeal within 50 days of the date the commissioners' report is filed. Day 140 - ? After an appeal is filed, the matter is then placed on a District Court calendar and disposed of much like any other jury trial. The timing, process and deadlines vary by Judge and judicial district. Any party may also appeal the jury award to the Minnesota Court of Appeals or Minnesota Supreme Court like any other appeal. IV. Just Compensation. The "Takings Clause" of the Fifth Amendment to the United States Constitution requires compensation when private property is taken. It reads: "[N]or shall private property be taken for public use, without just compensation." U.S. Const. Amend. V. The Minnesota Constitution is slightly different, reading: "Private property shall not be taken, destroyed or damaged for public use without just compensation therefor, first paid or secured." Minn. Const. Art 1, § 13. The Gc" Malkerson Gunn Martin LLP Minnesota Supreme Court has held that the protections afforded by the Minnesota Constitution are intended to "fully compensate [Minnesota] citizens for losses related to property rights incurred because of state actions." Johnson v. City of Minneapolis, 667 N.W.2d 109, 115 (Minn. 2003), citing State v. Strom, 493 N.W.2d 554, 558 (Minn. 1992). This is interpreted by some to mean that the Minnesota Constitution affords broader protection to private property owners from eminent domain than the United States Constitution. Definition of Just Compensation: The Willing Buyer and Seller. Just compensation is measured with reference to the fair market value of the property taken. Fair market value is defined as the amount a purchaser who is willing, but not required, to buy the property would pay to an owner who is willing, but not required, to sell it, taking into consideration the highest and best use to which the property can be put. Ramsey County v. Miller, 316 N.W.2d 917, 919 (Minn. 1982). Admissibility of Evidence to Prove Fair Market Value. Generally, any competent evidence may be considered if it legitimately bears upon the market value. Ramsey County v. Miller, 316 N.W.2d 917 (Minn. 1982). "[S]ubject to the caveat that such proof must be competent, relevant and material, evidence of any matter which would influence a prospective purchaser and seller in fixing the price at which a sale of the property could be consummated may be considered." State v. Strom, 493 N.W.2d 554, 559 (1992), quoting City of St. Paul v. Rein Recreation, Inc., 298 N.W.2d 46, 50 (Minn. 1980). However, there is a large body of cases in Minnesota (and in other jurisdictions) related to what evidence is admissible to prove the fair market value of condemned property. The following are selected principles that have emerged from these cases: 1. The "Project Rule." Enhancements in value to condemned property caused by the proposed or constructed governmental improvement is not to be included in determining the fair market value of the property taken for the improvement. State v. Anderson, 293 Minn. 455, 458 -59 197 N.W.2d 237, 240 (Minn. 1972). The same is true of evidence of diminution in value resulting from the project for which the property is condemned. See e.g. Regents of the University of Minnesota v. Hibbing, 302 Minn. 481, 225 N.W.2d 810 (1975). 2. Highest and Best Use. The law requires that property be valued at its "highest and best use" in condemnation proceedings. Highest and best use is defined as the most profitable use for which the property is adaptable. Minneapolis — St. Paul Sanitary Dist. v. Fitzpatrick, 201 Minn. 442, 277 N.W.2d 394, 399 (1937). Stated another way, highest and best use is: "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability." The Dictionary of Real Estate Appraisal, 3` ed. (Appraisal Institute 1993), 171. © Malkerson Gunn Martin LLP The following are principles applied by Minnesota courts in determining the highest and best use of condemned property: a. Assemblage. At times, the highest and best use of condemned property is for the property to be assembled with adjacent properties. In these cases, the courts consider evidence of the likelihood that such assemblage is possible. See e.g. Regents of the University of Minnesota v. Hibbing, 302 Minn. 481, 225 N.W.2d 810 (1975) (analyzing whether condemned property used as a duplex could be assembled with adjacent parcels for development into high- density residential uses, which the owner argued was its highest and best use); Olson v. United States, 54 S.Ct. 704, 292 U.S. 246, 256 -57 (1934). b. Zoning Change Probability. At times, the claimed highest and best use of condemned property is inconsistent with the zoning restrictions in effect at the time of taking. In such circumstances, evidence of "uses prohibited by an ordinance ... may be introduced and considered only when there is evidence showing a reasonable probability that the ordinances will be changed in the near future." State v. Briggs, 488 N.W.2d 811 (Minn. Ct. App. 1992); State v. Pahl, 254 Minn. 349, 95 N.W.2d 85, 90 (1959). C. Owners Use is Irrelevant. The use to which the owner has actually put the condemned property is irrelevant to the determination of the property's highest and best use, as are the owner's specific plans and intentions for future use of the property. State v. Gannons, 275 Minn. 14, 18 -19, 1.45 N.W.2d 321, 326 (1966). 3. Severance Damages /Partial Takings. The condemning authority does not always take entire tracts of land. In "partial takings," the owner of the condemned property is also entitled to compensation for the diminution in value of the remainder of the property after the taking. This is commonly referred to as "severance damages" or "consequential damages." City of Minneapolis v. Yale, 269 N.W.2d 754, 757 (Minn. 1978); Victor Company v. State, 290 Minn. 40, 41 186 N.W.2d 168, 170 (Minn. 1971). Severance damages are measured using the "before and after" rule, by which "the measure of damages is the difference between the fair market value of the entire piece of property immediately before the taking and the fair market value of the remainder of the property after the taking." State v. Strom, 493 N.W.2d 554, 558 -59 (Minn. 1992). The following are selected principles related to determining severance damages: a. Larger Parcel Rule. In Minnesota, tracts of land are considered together for purposes of measuring damages to the remaining property after a condemnation if the parcels are sufficiently connected. City of © Malkerson Gunn Martin LLP Minneapolis v. Yale, 269 N.W.2d 754 (Minn. 1978). According to a leading appraisal textbook, the rule is described as follows: "In condemnation, that tract or tracts of land which are under the beneficial control of a single individual or entity and have the same, or an integrated, highest and best use. Elements for consideration by the appraiser in making a determination in this regard are contiguity, or proximity, as it bears on the highest and best use of the property, unity of ownership, and unity of highest and best use." J.D. Eaton, Real Estate Valuation in Litigation, 76 (2 °0 ed., Appraisal Institute 1995), quoting Dictionary of Real Estate Appraisal, 202. The "contiguity" requirement has been eliminated by statute in Minnesota. See Minn. Stat. § 1.17.086, subd. 1. b. Mitigation of Damages and Cost to Cure. The owner of condemned property has a duty to exercise reasonable diligence to mitigate damages. State v. Pahl, 254 Mhm. 349, 357, 95 N.W.2d 85, 91 (1959). Severance damages to the property remaining after a partial taking are therefore sometimes limited to the "cost to cure" rather than the diminution in value of the remainder property. C. Loss of Access. The Mimnesota Supreme Court has held that reasonable access to public roadways is "a property right in the nature of an easement" for which condemnees are entitled to compensation. State v. Gannons, Inc. 275 Minn. 14, 24, 145 N.W.2d 321, 329 (1966). Minnesota courts have crafted a rule which regards an elimination of access as a compensable taking only when the owner of condemned land is left without reasonably convenient and suitable access to the main thoroughfare in at least one direction. Hendrickson v. State, 267 Minn. 436, 127 N.W.2d 165 (1964). d. Loss of Visibility and Construction Interference. Both construction interference and loss of visibility arising from a construction project are factors to consider in measuring the diminution in value of the remaining property after a partial taking. Grossman Investments v. State, 571 N.W.2d 47, 51 (Minn. Ct. App. 1998); State v. Strom, 493 MW.2d 554, 560 -61 (Minn. 1992). V. Methods of Valuation (Determining Just Compensation). Just compensation is detennined with reference to the fair market value of the property taken. Minnesota courts have traditionally approved of three methods of determining the fair market value of real property: (a) market data approach based on comparable sales; (b) income- capitalization approach; and (c) reproduction cost, less depreciation. These techniques are neither conclusive nor exclusive but are factors to consider in arriving at the fair value. State. v. Harbor City Oil Co., 486 N.W.2d 455 456 (Minn. Ct. App. 1993; Ramsey County v. Miller, 316 C Malkerson Gunn Martin LLP N.W.2d 917, 920 (Minn. 1982). Minnesota courts have also permitted use of a fourth method, the "development cost" approach, in certain situations. See e.g. Port Authority of City of St. Paul v. Englund, 464 N.W.2d 745 (Minn. Ct. App. 1991); Ramsey County v. Miller, 316 N.W2d 917 (Minn. 1982). Market Approach. [Value is derived] by comparing the property being appraised to similar properties that have been sold recently, applying appropriate units of comparison and making adjustments to the sale prices of the comparables based on the elements of comparison. The Dictionary of Real Estate Appraisal, 3` ed. (Appraisal Institute 1993), 318. Income Approach. [Value is derived] for an income producing property by converting its anticipated benefits (cash flows and reversions) into property value. This conversion can be accomplished in two ways. One year's income expectancy can be capitalized at a market- derived capitalization rate..... Alternately, the annual cash flows for the holding period and the reversion can be discounted at a specified yield rate. The Dictionary of Real Estate Appraisal, P ed. (Appraisal Institute 1993), 178, Cost Approach. [Value is derived] by estimating the current cost to construct a reproduction of, or replacement for, the existing structure, deducting accrued depreciation from the reproduction or replacement cost, and adding the estimated land value plus an entrepreneurial profit. The Dictionary ofReal Estate Appraisal, P ed. (Appraisal Institute 1993), 81. Development Cost Approach. Evidence derived from a fourth technique known as the "development cost" approach is admissible only with a proper foundation showing that (a) the land is ripe for development; (b) the owner can reasonably expect to secure the necessary zoning and other permits required for the development to take place; and (c) the development will not take place at too remote a time." Port Authority of City of St. Paul v. Englund, 464 N.W.2d 745, 748 -49 (Minn. Ct. App. 1991); Ramsey County v. Miller, 316 N.W.2d 917, 922 (Minn. 1982). The development cost approach is designed to reflect, through cash flow analysis, the current price a developer- purchaser would be warranted in paying for the land, given the cost of developing it and the probable proceeds from the sale of developed sites. 1. Real Estate Appraisers. Attorneys for both condemning authorities and property owners typically hire a real estate appraiser to present evidence of value during condemnation proceedings. Vl. Inverse Condemnation. © Malkerson Gunn Martin LLP "Inverse condemnation" is a cause of action against thegovernmental defendant to recover the value of property which has been taken in fact by the governmental defendant, even though no formal exercise of power of eminent domain has been attempted by the taking agency. .Johnson v. City of Minneapolis, 667 N.W.2d 109 (Minn. 2003). Claims for inverse condemnation must be brought by a writ of mandamus. Grossman Investments v. State, 571 N.W.2d 47, 50 (Minn. Cf. App. 1998), Spaeth v. City of Plymouth, 344 N.W.2d 815, 822 (Minn. 1984); Haeussler v. Braum, 314 N.W.2d 4, 10 (Minn. 1981); Alevizos v. Metropolitan Airports Commission of Minneapolis and St. Paul, 298 Minn. 471, 216 N.W.2d 651 (1974). Physical Intrusions. The "classic' inverse condemnation occurs when the government actually appropriates or intrudes upon private property without initiating condemnation proceedings. This happens, for example, when government actions result in the flooding of private property. See e.g. Spaeth v. City of Plymouth, 344 N.W.2d 815 (Minn. 1984). Regulatory Takings. Inverse condemnations arise not only in circumstances where the government actually occupies or takes possession of private property, but also in certain situations when government regulation of private property substantially interferes with the rights associated with property ownership. Such situations are called "regulatory takings." 1. Penn Central Balancing Test. The basic test for determining what constitutes a regulatory taking is set forth in Penn Central Transp. Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646 (1978). In that case, the United States Supreme Court established a three -part balancing test to determine whether a regulatory taking has occurred. The test requires a Court to examine: 1) The economic impact of the regulation; 2) The extent to which the regulation interferes with legitimate investment - backed expectations of the property owner; and 3) The character of the regulation. See also Johnson v. City of Minneapolis, 667 N.W.2d 109,114 (Minn. 2003). 2. Per Se Regulatory Takings. Under the test established in Penn Central, whether or not a regulatory taking has occurred is an ad -hoc determination to be made by a court based on the specific facts and circumstances presented by the government regulation at issue. However, in subsequent cases, the United States Supreme Court has found that certain regulations constitute "per se" or "categorical" takings that require no such analysis. a. The Loretto Case. © Malkerson Guam Martin LLP Loretto v. Teleprompter Manhatten CATV Corp., 458 U.S. 419, 102 S. Ct. 3164 (1982) established that regulations that result in a physical occupation of private property are per se regulatory takings. b. The Lucas Case. Lucas v. South Carolina Coastal Commission, 505 U.S. 1003, 112 S. Ct. 2886 (1992) established that regulations that result in the elimination of "all economically viable use" of private property are per se regulatory takings. 3. Government Enterprise- Arbitration Test. There is a distinction in Minnesota regulatory takings law between those land use regulations adopted pursuant to the government's inherent police power and those regulations adopted to advance a " governmental enterprise." Reasonable regulations adopted to arbitrate between competing land uses for the purpose of protecting the general welfare ordinarily do not constitute compensable takings. On the other hand, "land use regulations ... designed to benefit a specific public or governmental enterprise" do constitute compensable takings. McShane v. City of Pairbault, 292 N.W.2d 253, 257 -58 (Minn. 1980); Pratt v. State, 309 N.W.2d 767, 773 (Minn. 1981). VII. Challenging the Petition. Statutory Challenges. Landowners can challenge petitions in condemnation for violations of the requirements found in Chapter 117 of the Minnesota Statutes (governing condemnation proceedings generally) or under the particular statute that confers the eminent domain power on the condemning authority. Public Purpose Challenges. The Takings Clause requires that private property be taken only for a "public use." The United States Supreme Court recently interpreted "public use" to mean "public purpose" under the United States Constitution in Kelo v. City of New London, 125 S. Ct. 2655, _ U.S. _ (2005). The Kelo Court also found the taking of private property for economic redevelopment to be for a constitutional public purpose, subject to various limitations set forth in the opinion. When the Minnesota Supreme Court addressed the same issue in Housing and Redev. Auth. v. Walser Auto Sales, Inc., 641 N.W.2d 885 (Minn. 2002), the Justices split 3 -3 on whether economic development constitutes a public purpose under the Minnesota Constitution, thereby affirming the decision of the Minnesota Court of Appeals in favor of the condemning authority The United States Supreme Court had previously determined that it is permissible under the United States Constitution for the government to condemn private property for the purpose of clearing and redeveloping blighted slums. Berman v. Parker, 75 S. Ct. 98, 348 U.S. 26 (1954). The Court likewise found it permissible for the government to condemn private property for the © Malkerson Gunn Martin LLP purpose for reducing the concentration of land ownership in Hawaii, thus eliminating the "social and economic evils of a land oligopoly." Hawaii Housing Authority v. Midkiff, 104 S. Ct. 2321, 467 U.S. 226 (1984). Minnesota appellate courts have found that the judiciary's role in reviewing legislative determinations of public purpose is very narrow. City of Duluth v. State, 390 N.W.2d 757, 762- 63 ('Minn. 1986); Housing and Redevelopment Auth.v. Minneapolis Metropolitan Co., 259 Minn. 1, 15, 104 N.W.2d 864, 874 (1.960). VIII. Federal Condemnation Actions. The procedures and legal principles described in this publication apply only to condemnation actions undertaken in accordance with Minnesota state law. Ordinarily, when private property is taken for a federal purpose, a state or local government agency receiving federal funding will undertake the condemnation pursuant to state law. However, the federal government does occasionally condemn private property directly pursuant to the procedure set forth in Rule 71A of the Federal Rules of Civil Procedure. IX. Relocation Benefits. In addition to the required just compensation many property owners and tenants are entitled to relocation benefits under the Federal Uniform Relocation Assistance and Real Property Acquisition Act of 1970, as amended. 42 U.S.C. §§ 4601 -4655. ("URA'). Minnesota has incorporated by reference all of the provisions of the URA regarding relocation assistance, services, payment and benefits regardless of whether or not the project is funded in whole or in part by federal financial assistance or involves a federal agency. Minn. Star. § 1] 7.52, Subd. 1. The URA applies to "displaced persons." In order to receive benefits and assistance, the claimant must be a displaced person. Generally, a displaced person is "any person who moves from the real property or moves his or her personal property from the real property" as a result of the government's acquisition of the property. 49 C.F.R. §24.2; Minn. Star. § 117.50, Subd. 3. Notice Requirements. Prior to requiring a displaced person to vacate from real property, the condemning authority must provide the displaced person with a "90 -Day Notice." 49 C.F:R..§ 24.203 If the occupant is to be displaced from a dwelling (defined at 49 C.F.R. § 24.2), the condemning authority must make available one comparable replacement dwelling. 49 C.F.R. 24.204. "Comparable Replacement Dwelling" is also defined at 49 C.F.R. § 24.2. Relocation Claims. Generally relocation claims must be submitted to the condemning authority with evidence supporting the claim within 180 days after the displaced person is required to vacate or the final date of compensation for the acquisition of the real property. In order to obtain payment, a displaced person must submit a claim. "Any claim for a relocation payment shall be supported by © Nlalkerson Gunn Martin LLP such documentation as may be reasonably required to support expenses incurred, such as bills, certified prices, appraisals, or other evidence of such expenses. A displaced person must be provided reasonable assistance necessary to complete and file any required claim for payment." 49 C.F.R. § 24.207. Review of Claims. "The Agency [typically the condemning authority] shall review claims in an expeditious manner. The claimant shall be promptly notified as to any additional documentation that is required to support the claim. Payment for a claim shall be made as soon as feasible following receipt of sufficient documentation to support the claim." 49 C.F.R. § 24.207. PITFALL: The URA is divided into both acquisition "policies" and authorized relocation claims and payments. There is an argument that the acquisition policies of the URA are not enforceable even if violated. Roth v. United States Department of Transportation, 572 F.2d 183 (8 Cir. 1978) Types of favments. The Displaced Person is entitled to various types of payments as follows Residential Moves. For residential moves, the displaced person is entitled to (upon documentation) reasonable and necessary expenses for transportation, packing and unpacking, disconnecting and reinstalling, storage (for up to 12 months), insurance in connection with the move, replacement value for property damaged or stolen during the move, and other expenses determined by the condemning authority to be reasonable. 49 C.F.R. §24.301. Non-Residential Moves. For "non- residential moves," the displaced person is entitled to reasonable costs of transportation (up to 50 miles), packing and unpacking, disconnecting and reconnecting machinery, equipment and other personal property, storage (for up to 12 months), insurance for replacement value of personal property being moved, any licence, permit, or certification required of the displaced person at the replacement location (the value of which may be based upon the remaining useful life of the existing permit, licence of certification), replacement value of property damaged or stolen during the move, installing relocated personal property at the relocation site, and relettering signs and replacing stationary. The payment shall further include actual direct loss of tangible personal property incurred as a result of the taking and the purchase price of substitute personal property. 49 C.F.R. §24.303. Reestablishment Expenses. Certain occupants are entitled to reestablishment expenses in addition to the relocation benefits discussed above. Unlike relocation benefits which have no statutory maximum dollar limit, the © Malkerson Gunn Martin LLP amount available for reestablishment expenses is limited to $10,000 and is available only to a small business, farm or nonprofit organization. 49 C.F.R. § 24.304. Reestablishment expenses do not include reimbursement for the purchase of capital assets or production material, or interest of borrowed money. Id. See Relocation Benefits of Wilkins Pontiac, Inc., 530 N.W.2d 571, 575 (Minn. Ct. App. 1995). In Minnesota, "an acquiring authority may consider reimbursing up to $50,000 in reestablishment expenses of a displaced business." Minn. Stat. § 117.51. Dugilication of Payments The URA prohibits duplication of payments. Thus, if the displaced person is compensated for an item as just compensation, that displaced person is not again entitled to payment as a relocation benefit. 49 C.F.R. §24.3. Ineligible Expenses 49 C.F.R. § 24.305, provides an exclusion for certain expenses which may in fact be incurred due a relocation but do not qualify for reimbursements. Among other ineligible expenses are the cost of moving any structure in which the displaced person retains an ownership interest, interest on a loan, loss of goodwill, loss of profits, or loss of trained employees, expenses for search for a replacement dwelling or physical changes to the real property. 49 C.F.R. § 24.305. Replacement housing The relocation regulations provide for special protection and benefits for occupants displaced from a dwelling. 49 C.F.R. §24.401; 49 C.F.R. §24.402. Dwelling is defined at 49 C.F.R. § 24.2. PROCEDURE FOR MAKING AND APPEALING A CLAIM A relocation claim must first be presented to the condemning authority for review and approval (or disapproval). 49 C.F.R. § 24.207. "Any aggrieved person may file a written appeal with the [condemning authority] in any case in which the person believes that the [condemning authority] has failed to properly consider the person's application for assistance." 49 C.F.R. § 24.10(b)." Following the appeal, if the requested relief is not granted the aggrieved person is entitled to judicial review and must be so informed of this right to judicial review. 49 C.F.R. §24.10(g). © Malkerson Gunn Martin LLP