A big thanks to the Appraisal Institute – Greater Oregon Chapter for hosting the January 20, 2017 seminar entitled “Preparing Appraisals for Condemnation Assignments, and How to Improve Skills as an Expert Witness.” I was honored to present the day-long seminar alongside Don Palmer, MAI, of Appraisal & Consulting Group LLC. Don is one of the deans of condemnation appraisers in Oregon and the Pacific Northwest, and a true gentleman. We had a great turnout, a wealth of questions and comments, and much positive feedback. I look forward to future opportunities to work with this great group of appraisers. Finally, a special thank you to Vicki Champ, the Chapter’s executive director. Vicki is a pleasure to work with and a true professional.
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:
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.
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.
In a recent decision, the Oregon Supreme Court clarified Oregon law on “physical invasion” inverse condemnation claims. In Dunn v. City of Milwaukie, 355 Or 339, 361, __ P3d __ (2014) (en banc), the court held that a homeowner could not maintain a claim for inverse condemnation against the city based upon a physical invasion of sewage into her home caused by the city. Reversing both the court of appeals and trial court, the court held that the homeowner failed to prove that the city had the requisite intent to invade her home with sewage because she failed to show either that the city specifically intended the invasion or that intent could be imputed to the city based upon the invasion being the “natural and ordinary consequence” of the city’s actions. Id. In order to satisfy the “natural and ordinary consequence” test, the court held that a plaintiff must show the physical invasion was the “inevitable result” of the government’s intentional act. Id. at 358-59, 61.
The court restated “natural and ordinary consequence” test as follows:
A factfinder is entitled to impute the requisite intent to take property if the invasion to the property owner’s interests was the necessary, substantially certain, or inevitable consequence of the government’s intentional acts. . . . And although a plaintiff’s burden is less than specific intent would make it, it is still exacting. A plaintiff still must show that the government intentionally undertook its actions and that the inevitable result of those actions, in the ordinary course of events, was the invasion of the plaintiff’s property that is the basis for the plaintiff’s inverse condemnation claim. Thus, if a plaintiff’s best evidence is that the invasion was a less that certain consequence — such as a conceivable, possible, or plausible outcome, or one that otherwise might or might not occur — that is not enough for a factfinder to infer that the invasion was intentional.
Id. at 358-59.
In Dunn, the city was in engaged in “hydrocleaning” of sewer pipes, which involved applying high pressure water to sewer pipes, so that the cleaned pipes could be properly inspected for maintenance and repair purposes. Id. at 341. The city’s hydrocleaning resulted in sewage backing up into the homeowner’s lateral line and exploding into her home through her plumbing fixtures. Id. at 341-42. As described by the court:
Plaintiff first became aware of a backup when she heard a “loud roar,” felt her house shake, and then saw “brown and gray gunky sewer water that stunk” come out her toilets and bathroom fixtures. Soon afterwards, water was dripping from her bathroom ceiling and was three to four inches deep on the bathroom floor, flowing down the hallway and into her living room.
Id. at 342.
Plaintiff’s home suffered significant damage as a result of the invasion of water and sewage. Id. Over a period of months, the homeowner tried to remedy the damage to her home without success. Id. About 10 months after the incident, she filed a formal complaint with the city. Id. After the city apparently failed to take responsibility for the “incident,” and about 20 months after the incident, the homeowner filed claims against the city for negligence and inverse condemnation. Id.
The trial court dismissed the negligence claim based upon the homeowners’ failure to comply with Oregon’s strict tort claims notice provisions for suing governmental entities in tort. Id. It, however, allowed her inverse condemnation claim to continue, as it was not conditioned upon a statutory waiver of sovereign immunity. See id.
As noted by the court, “[a]t trial, no witness could explain why the sewage backed up into plaintiff’s house when it did.” Id. at 342. “The two city workers who were hydrocleaning the sewers near plaintiff’s house when the backup occurred explained that they did ‘everything by the book’ and that their equipment was ‘operating properly’ that day.” Id. at 343. Notably, a plumber who inspected the house and found nothing out of the ordinary with the home’s pre-incident plumbing system, provided that “backups sometimes occur if the hydrocleaning cannot clear a blockage in the main line, which can cause sewage water in the main line to backup into a lateral line running to a nearby house.” Id. He further “was generally aware of other sewer backups such as the one into plaintiff’s house, and he characterized them as ‘uncommon.'” Id. Similarly, one of the city workers involved was personally aware of another such sewage backup into a home. Id.
Relying on Vokoun v. City of Lake Oswego, 335 Or 19, 56 P3d 396 (2002) (en banc), the trial court accepted the plaintiffs’ argument that to show the city’s requisite intent to physically invade her property “she had to show only that the backup into her house was the ‘natural and ordinary consequence’ of the city’s actions and that where, as here, there was no evidence of any other causes, the evidence was sufficient to go to the jury.” Id. at 344. The jury found for the plaintiff and awarded just compensation in the amount of $58,333. Id.
The Oregon Court of Appeals was similarly persuaded by the plaintiff’s argument, affirming the trial court decision and stating as follows regarding satisfying the intent requirement: “The question is not whether the harmful result occurs frequently; it is whether the result is the natural and ordinary consequence of the government’s action at the time and place where that action occurred.” Id. at 345 (citing Dunn v. City of Milwaukie, 241 Or App 95, 102, 250 P3d 7 (2011)). In other words, the court of appeals held that “the jury could infer the city’s intent from evidence that the city had carried out the cleaning according to normal procedures and that doing so in some areas of the city can cause sewer backups in private houses.” Id.
Consistent with these facts, the Oregon Supreme Court found that the “[t]he conclusion most favorable to plaintiff on this record is that the intrusion of sewage water into one or more nearby houses was a known risk of hydrocleaning generally, but one that rarely came to pass.” Id. at 361. In applying its narrow reading of “natural and ordinary consequence” test as stated in Vokoun, the court, however, held that this was not enough; that the plaintiff did not show that the physical invasion of sewage was the “necessary, certain, predictable, or inevitable result” of the city’s actions. Id.
The Oregon Supreme Court has obviously laid down an extremely high bar for physical invasion inverse condemnation claims in which specific intent cannot be shown. Apparently, even when the government is engaged in an activity that is known to cause physical invasions of private property, if the frequency of such physical invasions is low, it can act without liability on a takings claim. If the government knows that its actions will likely result in sewage exploding into 1 of out of every 1000 homes, and, in fact, its actions do cause such effect, does the government act with intent to physically invade that one home? I believe a very good argument can be made that, yes, it does then act with the requisite intent. I believe the trial court in this case and court of appeals would likely agree. What about 1 in 100 homes? 1 in 10? At what point would the Oregon Supreme Court be satisfied that the result of governmental action was “necessary, certain, predictable, or inevitable”? The court states in a footnote that “[c]ertainty or inevitability, in this context, does not require–at least not, necessarily–regularity or frequency” and gives the example of flooding of particular property “substantially certain to occur on a seasonal or other intermittent basis.” See id. at 356 n 13. If this is the case, should not statistical “substantial certainty” be enough–that some percentage of a group of properties will be “naturally and ordinarily” invaded as a result of government action?
In addition, reporting by The Oregonian provides some additional background.
Today, in a 126-page, long-awaited opinion, the Oregon Court of Appeals reversed and remanded the Land Conservation and Development Commission’s order confirming the designation of urban and rural reserves by Metro and the counties of Clackamas, Multnomah and Washington. Barkers Five, LLC v. Land Conservation and Development Commission (A152351). The urban and rural reserve system was designed to manage growth in the Portland metropolitan area until 2060.
A synopsis of the decision can be found in today’s media release from the Court of Appeals.
Here’s an excerpt from the opinion (footnotes omitted):
This case concerns the designation of urban and rural reserves in the Portland metropolitan area that will guide its growth until 2060. Metro, in conjunction with Clackamas, Multnomah, and Washington counties, designated such reserves under a new process that had been established by the legislature in 2007, and, in June 2010, they submitted their designation to the Land Conservation and Development Commission (LCDC) for review. See generally ORS 197.626(1)(c), (f) (providing for LCDC review of urban and rural reserves). Ultimately, in August 2012–approximately one year after LCDC voted to acknowledge a revised submittal–LCDC issued its 156-page, single spaced acknowledgment order.
Twenty-two petitioners–including property owners, nonprofit and citizen 12 groups, and municipalities–seek judicial review of that order. In hundreds of pages of briefing, they raise assignments of error that are predicated on a record that consists of approximately 36,000 pages. Collectively, petitioners’ assignments of error range from fundamental methodological issues pertaining to LCDC’s understanding and application of the legal principles that govern the designation of reserves to the correctness of LCDC’s substantial evidence review of Metro and the counties’ designation of particular land as either urban or rural reserves. Simply stated, petitioners contend that LCDC’s order is unlawful in substance because, in reviewing Metro and the counties’ designation, LCDC misapplied the legal principles governing the designation of urban and rural reserves and circumscribing its review.
* * *
[W]e conclude that LCDC erred in four respects. In particular, LCDC erred in (1) approving Washington County’s misapplication of the rural reserve factors pertaining to agricultural land; (2) concluding that Multnomah County had adequately “considered” the rural reserve factors pertaining to Area 9D; (3) concluding that it has authority to affirm a local government’s decision where its findings are inadequate if the evidence “clearly supports” the decision; and (4) failing to meaningfully explain why–even in light of weighty countervailing evidence–Metro and the counties’ designation of Areas 4A to 4D (commonly referred to as Stafford) as urban reserves is supported by substantial evidence.
Accordingly, because LCDC’s order is unlawful in substance in various respects, we reverse and remand LCDC’s order for further action consistent with the principles expressed in this opinion. ORS 197.651(10)(a) (providing that “[t]he Court of Appeals shall reverse or remand the order only if the court finds the order is[,]” among other things, “[u]nlawful in substance”).
What effect this decision will have on the legislative efforts to craft a “grand bargain” regarding the urban and rural reserves designations and related urban growth boundary issues is unknown. Stay tuned.