Fresh off its decision in Dunn v. City of Milwaukie, 355 Or 339, 361, 328 P3d 1261 (2014) (en banc), the Oregon Supreme Court has, again, narrowily read its previous decisions and raised the bar for property owners seeking recourse on inverse condemnation claims under the Oregon constitution. In Hall v. Department of Transportation, 355 Or 503, 326 P3d 1165 (2014) (en banc), the court held that a property owner seeking relief on a “condemnation blight” inverse condemnation claim–one in which a property owner seeks relief for damages resulting from the specter of condemnation ahead of an actual taking–the property owner must allege and ultimately prove that the government’s actions deprived the property owner of “all economically viable use.” Id. at 523. In other words, it is not enough that the government’s actions have diminished the value of a property, even substantially; to maintain a condemnation blight claim, the property must apparently have virtually no remaining value.
Upholding the court of appeals reversal of a jury verdict in excess of $3,000,000, the supreme court held that the plaintiffs’ classic “condemnation blight” allegations and supporting evidence failed to “establish a cognizable de facto taking by condemnation blight” because “plaintiffs’ property retained some economic value.” Id. at 523. In reaching its decision, the court expressly rejected the plaintiffs’ argument that condemnation blight claims are subject to the less stringent “reduction-in-value damage requirement” associated with “the substantial-interference-with-use-and-enjoyment standard,” id. at 522, reserving this standard for cases in which “a governmental actor physically occupies private property or invades a private property right.” Id.
To give some flesh to the bone, the plaintiffs in this case presented evidence at trial supporting the following allegations:
- The Oregon Department of Transportation (ODOT) “had disseminated information to the public that plaintiffs’ access to the state highway system would be eliminated and that ODOT planned to acquire plaintiffs’ property through eminent domain proceedings”;
- ODOT had conducted public hearings and otherwise informed the public that the highway interchange near the plaintiffs’ property was dangerous, it would be eliminated, and that plaintiffs access to it property would accordingly be eliminated;
- ODOT had disclosed plans and consulting reports recommending the closure of the interchange and taking of plaintiffs’ property;
- ODOT had informed the local city with jurisdiction over the area that it intended to remove plaintiffs’ access and take their property; and
- ODOT had specifically informed prospective investors, lessees, purchasers and developers of the subject property that it intended to close the interchange and take plaintiffs’ property.
Id. at 506-07.
This activity went on for a period of six years without ODOT initiating condemnation proceedings, as it worked through public opposition to removal of the interchange. Id. at 506. Indeed, during a period of ODOT-instituted delay, when ODOT learned that the plaintiffs were trying to develop their property, ODOT internal emails confirmed that “ODOT had taken steps to stop any future development of plaintiffs’ property.” Id. Moreover, “[b]etween 2005 and 2007, plaintiffs attempted to sell their property or reach agreements to development,” which efforts were unsuccessful, id., and “[a] real estate broker . . . testified that he was unable to consummate an agreement because of the uncertainty surrounding the closure of the . . . interchange.” Id.
At the close of evidence, “ODOT moved for a directed verdict on the ground that there was no evidence that its conduct amounted to a nuisance but, rather, the evidence showed that it had engaged in planning for a public purpose, and that the proper standard of harm was whether ODOT’s conduct had deprived the plaintiffs of all economically viable use of their property.” Id. at 508. The trial court denied the motion and rejected ODOT’s proposed jury instructions premised on similar arguments. Id. “In response to questions posed in the verdict form, the jury found that ODOT’s actions had substantially and unreasonably interfered with plaintiffs’ use and enjoyment of the land, and that those actions were sufficiently direct, particular, and of a magnitude to support a conclusion that the interference had reduced the fair market value of the property.” Id. at 509. “The jury found that the value of the property without interference was $4,000,000 and that ODOT’s interference had reduced that value by $3,378,750.” Id. “The trial court denied ODOT’s motion for judgement notwithstanding the verdict and entered judgment for the plaintiffs.” Id.
The court of appeals reversed the trial court’s decision on two grounds: (1) “evidence that ODOT’s actions lowered the value of plaintiff’s property was insufficient to establish a compensable taking”; and (2) the trial court erred to the extent it relied in its rulings for plaintiffs that ODOT was pursuing a vendetta against them because plaintiffs’ assertion of ODOT’s malicious intention was “self-defeating” in that “[i]f * * * the intent behind ODOT’s actions was not to take plaintiffs’ property for public use, then those actions could not amount to a taking.” Id. at 509 (emphasis in original) (citation omitted).
On review, the supreme court ignored the “vendetta” issues, and confined its analysis to “plaintiffs’ assertions that the trial court properly based its dispositive ruling, jury instructions, and verdict form on its conclusion that the substantial-interference-with-use-and-enjoyment standard–not the more stringent deprivation-of-all-economically-viable-standard–applied to plaintiffs’ inverse condemnation claim.” Id. at 510. It specifically held that “because the actions that plaintiffs challenge involved planning related to the designation of plaintiffs’ property for eventual public use, and plaintiffs did not allege that those actions deprived them of all economically viable use of their property or prove that ODOT physically occupied their property or invaded their property rights in a way that substantially interfered with its necessary use and enjoyment, the trial court erred in denying ODOT’s motion for a directed verdict.” Id.
The court reached this decision only by reading its previous decision in Lincoln Loan Co. v. State Hwy. Comm., 274 Or 49, 545 P2d 105 (1976) to an extremely narrow–and arguably distorted–extent. In Lincoln Loan, the plaintiff “brought [an] inverse condemnation action against the Oregon State Highway Commission to recover damages for an alleged taking of plaintiff’s property in the process of the construction of the East Portland Freeway by allegedly placing a ‘cloud of condemnation’ over the property, which resulted in a ‘condemnation blight’ and a de facto taking, not of the possession of the property, but of a substantial use and benefit thereof.” Id. at 51. The Oregon Supreme Court held that plaintiff stated a claim for inverse condemnation based upon this condemnation blight theory on the following allegations:
- “[A]bout ten years prior to the filing of the complaint in this action the defendant, by resolution, declared plaintiff’s property necessary in the construction of the said East Portland Freeway.”
- ‘That at the time of declaring the resolution aforesaid and at all times thereafter defendant commenced the taking of real property in the vicinity of plaintiff’s property for highway purposes and did in fact file condemnation proceedings against plaintiff’s property herein.”
- “That in so taking said properties, defendant has caused the following:
(a) Caused notices to be published that all real property within the areas designated by the State of Oregon would be taken for roadway purposes;
(b) Caused notices to be given that no compensation would be awarded for improvements to said real property even though such improvements may be in the nature of maintenance only;
(c) Caused dwellings to be dismantled in the surrounding properties, creating noise, dust and confusion and encouraging the decay and desertion of the area;
(d) Caused heavy equipment including trucks and tractors to be brought into the neighborhood for use in demolishing adjacent buildings and thereby further encouraging the decay and desertion of the area;
(e) Caused notices to be given to tenants that they would be required to vacate the buildings in the area because the defendant was taking them for roadway purposes;
(f) Caused notices to be published that defendant would pay moving expenses and other compensation to tenants if they vacated plaintiff’s premises described above.”
Id. at 51-52. After a thorough analysis, the court held that “[p]laintiff has alleged adequate facts which indicate a substantial interference by the state with the use and enjoyment of its property. The combination of the acts alleged in plaintiff’s complaint, the alleged pervasive extent of that combination of acts and the alleged duration of those acts over a ten-year period unite to allege a substantial interference with the use and enjoyment of its property by plaintiff.” Id. at 57. The court then went on to specifically describe as “unpersusive” a number of cases from other jurisdictions “all of which held that preliminary steps taken to exercise the power of eminent domain without an actual physical taking or invasion are not actionable by the landowner.” Id. at 58.
To avoid the clear direction of its previous decision in Lincoln Loan, the Oregon Supreme Court in Hall, rather than looking to the totality of the circumstances which gave rise to the condemnation blight inverse condemnation claim in Lincoln Loan and the court’s express rejection in Lincoln Loan of a requirement of physical taking or invasion to invoke the substantial interference standard, focused on only one of the acts alleged–the creation of “dust, noise and confusion”–and thus marginalized Lincoln Loan as follows:
“The plaintiff in Lincoln Loan alleged that the defendant had interfered with its use and enjoyment of its property by, among other things, creating noise, dust, and confusion by the demolition of neighboring properties.
Viewed in its particular context, Lincoln Loan thus stands for the proposition that a precondemnation, government-created nuisance that substantially interferes with an owner’s right to the use and enjoyment of property can give rise to an inverse condemnation claim based on a resulting reduction in the property’s value. However, nothing in Lincoln Loan suggests that, in the absence of a physical occupation or invasion of a property right, a government action that causes only a reduction in the value of property qualifies as a taking.”
Hall, 355 Or at 516 (emphasis added).
Whatever your sense of the outcome of case, it is a good read and one that thoroughly explains the Oregon Supreme Court’s analytical framework for inverse condemnation claims. Also of interest, it was argued for the plaintiff property owner by former Oregon Supreme Court justice Michael Gillette.
Finally, it is also very important to note that the holding applies only to claims under Oregon’s constitution. As noted by the court in its concluding footnote, the plaintiffs did not “raise a federal constitutional argument in this court; accordingly, we do not address that issue.” Id. at 524 n 9.