A New Wisconsin Court of Appeals Decision Leaves Condemnors Scratching Their Heads

“I agree with you. But my appraiser doesn’t.”

The Wisconsin Court of Appeals ended 2019 with a bang by eminent domain standards with a controversial decision in Christus Lutheran Church of Appleton v. State Department of Transportation. The case presents this question: can a condemnor ever offer a landowner too much compensation in a jurisdictional offer? According to the Christus Lutheran court, the answer is yes.

Christus Lutheran is required reading for any lawyer who advises condemning authorities. Unfortunately, it’s also badly botched. Hopefully, the Wisconsin Supreme Court will accept review and set things straight.

How did we get here?

It’s important to understand why a landowner would possibly complain about getting paid too much for a taking: attorney fees. The “jurisdictional offer” is the condemnor’s last, best offer to the landowner before the condemnor proceeds officially with condemnation. Under Wis. Stat. § 32.28, a landowner can recover attorney fees if the landowner goes to court and obtains an award that exceeds the jurisdictional offer by 15% (and a certain dollar amount).

So, the lower the jurisdictional offer, the easier it is for a landowner to recover attorney fees later. Attorneys for landowners know this. Christus Lutheran walks and talks like a procedural challenge to a taking. But the real issue is attorney fees.

In Christus Lutheran, DOT tried to condemn a portion of the Church’s property for a highway project. DOT made an initial offer based on appraised damages of $133,400. Through its attorney, the Church refused to negotiate but made clear that it would not accept the offer. DOT reconsidered, increased the offer to include various severance damages, and issued a jurisdictional offer at $270,000 higher than the appraisal amount.

Rather than accepting the higher offer, the Church challenged the taking. Pointing to the discrepancy between the appraisal and the jurisdictional offer, the Church contended that the jurisdictional offer was defective and asked the court to invalidate the taking. In effect, the jurisdictional offer was too high.

While the circuit court ruled in DOT’s favor, the court of appeals reversed. According to the court of appeals:

The appraisal in this case failed to value “all property proposed to be acquired,” contrary to Wis. Stat. § 32.05(2)(a). In the case of a partial taking, the items of just compensation include the damages specified by Wis. Stat. § 32.09(6), as applicable. The jurisdictional offer included a new line item for severance damages, which is a statutorily compensable item of damages that the appraisal specifically rejected. As a result, the jurisdictional offer was not sufficiently based upon the appraisal, as required by § 32.05(2)(b) and (3)(e).

¶ 33. The court also said:

Absent a negotiated agreement with the property owner, if the DOT, based solely upon its independent review of an appraisal, believes additional statutory items of just compensation warrant inclusion in the jurisdictional offer, it must obtain a new appraisal that substantiates that belief and provides an opinion as to the value of those interests.

¶ 32 (emphasis added).

This holding is troubling for a bunch of reasons.

First, the decision is just wrong. It confuses property and damages, which are two different things. The property is the bundle of land rights affected by the project. A property can be described in a legal description and depicted by lot lines on a map. Damages, in contrast, are the impact or loss in value to the property caused by the project. The statutes require that the appraisal value “all property proposed to be acquired,” not that the appraisal include all damages. See Wis. Stat. § 32.05(2)(a). In fact, appraisers and parties routinely disagree about damages to a property. That doesn’t mean the appraiser didn’t appraise the property being acquired.

Second, the court’s proposed solution – to get a new appraisal that “substantiates” the condemnor’s beliefs – is unethical and unworkable. Appraisers have an ethical obligation to act in a manner that is independent, impartial, and objective. See Preamble and Definitions, Uniform Standards of Professional Appraisal Practice (2018-19). While clients can direct the scope of an appraisal – e.g. tell the appraiser what property to appraise – good appraisers won’t tolerate meddling in their conclusions.

Are condemnors now obliged to start the appraisal process over every time they disagree with their appraiser? And how many appraisers does the court of appeals think are out there that do eminent domain work?

Finally, this decision ties the hands of condemnors who are trying to do the right thing. In essence, this decision appears to prohibit condemnors from increasing an offer even when they think a landowner is entitled to more compensation. This contravenes the fundamental policies underlying Wisconsin’s condemnation laws, including encouraging reasonable offers early and avoiding litigation.

The Christus Lutheran decision, which came out of District III, significantly erodes a 2017 decision from District IV, Otterstatter v. City of Watertown. In both Otterstatter and Christus Lutheran, the landowners refused to negotiate, refused to obtain a second appraisal from an appraiser of his own choosing at the condemnor’s expense, and refused to share any evidence of value with the condemnor. Both sought to punish the condemnor for paying more than the appraised value. Yet the two courts reached divergent conclusions. See our previous blog entry about the Otterstatter case here.

The court of appeals rejected DOT’s motion to reconsider the Christus Lutheran decision, paving the way for DOT to seek review by the Wisconsin Supreme Court. Their petition is due at the end of January.

Stay tuned.

Full disclosure: Author Sara Beachy was counsel for the condemnor in the Otterstatter case.