Deep Tunnel Causes Adjacent Building Collapse: Wisconsin Court of Appeals Clarifies Takings Law

In E-L Enterprises v. Milwaukee Metropolitan Sewerage District [1], the District’s contractors were directed to construct a deep-tunnel storm-water system. In order to keep the tunnel work area dry, the contractors drained groundwater in proximity to the tunnel. An adjacent building owned by E-L Enterprises was supported by pilings. Groundwater was vital to soil saturation and piling support. The contractors’ groundwater drainage caused E-L Enterprises’ building to settle and sustain damages in an unstated amount.

E-L Enterprises brought a lawsuit seeking compensation for a «taking» of its property. After the trial court agreed and awarded damages for a taking, the Court of Appeals was presented with the issue whether the District’s work and resultant damage was directly due to the project, or mere consequential damage. Only direct damage may constitute a taking. The Court issued its Decision, affirming the trial court, on December 28, 2008. This Decision sheds light on what factors a court should consider in evaluating a takings claim.

The Wisconsin Constitution provides that: «The property of no person shall be taken for public use without just compensation therefore.» Governmental entities have the power to condemn property subject to this duty to pay. In cases where property is taken but no compensation paid, a property owner may seek to recover damages through an «inverse condemnation» action authorized by Wis. Stats. §32.10.

Wisconsin law recognizes that a taking may occur without physical entrance onto private property. For example, a «regulatory taking» results from the imposition of government regulations that deprive a property owner the use of his or her property.

Further, a taking may occur where a governmental entity takes action outside of a subject property’s boundaries, but that action nevertheless adversely impacts the owner’s use of the subject property. The Wisconsin Courts have reviewed several versions of this scenario, and continue to clarify when such conduct results in an inverse condemnation. For example, in the early 1900s, it was held that the removal of a building’s lateral support by the grading of a street is a compensable taking. [2] However, «mere consequential damage to property resulting from government action is not a taking.» [3] The line between direct and consequential damage is less than clear.

Key factors to demonstrate direct damage amounting to a taking include: (1) the affected property has some utility to the government project; (2) the government needed or desired the property; (3) the government intended to acquire or effect the property; (4) the public obtained a benefit from injuring the property; (5) the government had reason to anticipate that the damage would result from its acts; and (6) the damage was not purely accidental.

In E-L Enterprises, the Sewerage District was aware of a potential groundwater problem affecting adjacent buildings, and directed its contractor to avoid damaging those buildings when removing groundwater. The District clearly anticipated the damage from its actions. Moreover, the drainage of groundwater, which caused the damage, had a specific utility to allow safe tunnel construction. Based on these factors, the Court concluded the damage was direct, as opposed to consequential, and therefore a taking.

When presented with a scenario where government action damages real property, a careful and fact-intensive analysis is required. This new decision will assist governments and property owners in evaluating whether a property damage claim is a taking or a mere tort claim subject to governmental immunity and other statutory protections.

[1] 2008 AP 921 (Dec. 23, 2008).
[2] Damkoehler v. City of Milwaukee, 124 Wis. 144, 151, 101 N.W. 706, 708 (1904); Dahlman v. City of Milwaukee, 131 Wis. 427, 439-40, 111 N.W. 675, 677 (1907).
[3] Wisconsin Power & Light Co. v. Columbia County, 3 Wis.2d 1, 6, 87 N.W.2d 279, 281 (1958).