Condemnation and the Uneconomic Remnant

August 5, 2013

Wisconsin law requires that a condemnor offer to purchase the entire property of a condemnee if the condemnor’s taking results in an uneconomic remnant. An “uneconomic remnant” is defined as property remaining after a partial taking, if the property remaining is of such size, shape, or condition as to be of little value or of substantially impaired economic viability. Until this case, there was no case law or statutory guidance indicating what “little value” means or how substantially the economic viability of a property had to be “impaired” before it is an uneconomic remnant. Additionally, Chapter 32 of the Wisconsin Statutes does not provide a mechanism for a landowner to raise the uneconomic issue. It was unclear whether landowners who successfully litigate this issue are entitled to litigation expenses under Wis. Stat. § 32.28 and relocation expenses under Wis. Stat. § 32.19. The Wisconsin Supreme Court recently addressed these and other issues involving an uneconomic remnant claim in Waller v. American Transmission Company LLC, 2013 WI 77.

The Plaintiffs in Waller owned a 1.5-acre triangular lot containing their residence. The property was bounded by an interstate highway on the east, a town road and existing 20-foot transmission line easement on the north, and a vacant lot on the west. It was subject to a 50-foot setback along the interstate and 25-foot setback along the road to the north. The land nearby had transformed from agricultural use to an industrial park during the 20 years of the Wallers’ ownership.

In 2006, ATC obtained a certificate of public convenience and necessity from the Wisconsin Public Service Commission to upgrade and expand the existing transmission line. It sought from the Wallers two easements: one would overlay the existing transmission line on the north, widening the right-of-way to 45 feet; and the other, a 45-foot-wide easement on the east, would be within the interstate highway setback.

ATC’s appraiser found a before-value of $130,000 and after-value of $55,000—a loss of $74,500, or nearly 57% of the value. He found an additional $7,500 in damages to demolish the residential improvements because those improvements were rendered “totally obsolete” by the project. The landowners’ appraiser found a loss of $116,500 or 88% of the before-value.

ATC’s jurisdictional offer did not offer to acquire the entire parcel. The exclusion of the offer, according to the Wisconsin Supreme Court, indicated that the condemnor disputes the existence of an uneconomic remnant. The Wallers sued under Wis. Stat. § 32.06(5), the “right-to-take” provision.

After a long procedural history, including two trips to the Wisconsin Court of Appeals, the trial court found that: (1) the property remaining after the taking was an uneconomic remnant; (2) the property owners were entitled to litigation expenses under Wis. Stat. §32.28; and (3) the Wallers were “displaced persons,” entitled to relocation benefits.

The Wisconsin Supreme Court addressed the four issues below; but the majority’s decision may raise more issues than it resolves.

A claim for an uneconomic remnant must be brought under §32.06(5), the “right-to-take” provision. Wisconsin law requires a condemnor for a non-transportation project to negotiate with the landowner to obtain the rights it needs for the project. If negotiation fails, the condemnor issues a jurisdictional offer. If the offer is not accepted by the landowner within 20 days, the condemnor can file a condemnation petition, and the value of the taking is then decided by the county condemnation commission, or a jury if either party appeals the commission award. The right-to-take provision under § 32.06(5) allows the landowner to contest the condemnor’s right to take the property “for any reason other than the amount of compensation offered is inadequate.” The right-to-take action must be filed within 40 days of receipt of the jurisdictional offer.

The Waller majority held that an uneconomic remnant claim must be brought under the right-to-take statute. ATC contended that the claim should be raised either in the condemnation evaluation proceeding or in an inverse condemnation proceeding under Wis. Stat. § 32.10. The majority took great care to make clear that the right-to-take procedure will not prevent the condemnor from obtaining the land rights it needs to build the project. The majority stated that the condemnor can file a condemnation petition, and proceed to the condemnation commission where the commission will determine a value of the land rights the condemnor is seeking. At the same time, for the court to determine whether an uneconomic remnant exists, the court must hear testimony from the same appraisers and other witnesses who appeared before the condemnation commission. However, this analysis by the majority raises questions. If the court finds the existence of an uneconomic remnant, what effect does the condemnation commission award have (or subsequent jury verdict as a result of the appeal of the condemnation commission award) upon the taking of an uneconomic remnant? Is it a nullity? Does the condemnor start over? Pursuant toWaller, the circuit court is the fact finder in determining the existence of an uneconomic remnant. However, by statute, condemnation litigants have the right to a jury trial. Does the Waller decision abrogate that right? The Waller dissent is highly critical of the majority’s opinion because of this “procedural quagmire.”

The Waller property was an uneconomic remnant. An uneconomic remnant exists if the property remaining is of such size, shape, or condition as to be of little value or of substantially impaired economic viability. Wis. Stat. § 32.06(3m). The Wisconsin Supreme Court affirmed the trial court’s finding of an uneconomic remnant, citing percentage losses found by the appraisers, and the fact that ATC’s own jurisdictional offer “acknowledged a 76% decrease in value from the taking.” The court summarized the negative findings in both appraisals and concluded that “the size, shape, and condition of the Waller property is of substantially impaired economic viability as either a residential or light industrial parcel, and it is, therefore, an uneconomic remnant.” As the dissent points out, the majority employed some sloppy language in its initial summary of holdings, stating in Paragraphs 7 and 119 of the opinion that the easements “substantially diminished the desirability, practicality, and value of the Wallers’ property …” The problem is that the statutory language is far different. It speaks in terms of substantially impaired economic viability, not diminished “desirability” or “practicality.” Landowners will no doubt depend on the “diminished desirability and practicality” language in future claims. In addition, this may increase future claims because it arguably lowers the statutory standard considerably, or at least materially alters that standard. So, instead of giving lower courts guidance on the meaning of “substantially impaired economic viability,” the majority opinion actually confuses the analysis.

In its reasoning to support the existence of an uneconomic remnant, the majority focused on the appraisers’ opinions of percentage loss. As the dissent points out, even a $6 million parcel in the before-condition that loses 88% of its value has a remaining worth of $1.32 million. This does not appear to fit the statutory definition of “little value or … substantially impaired economic viability.” The majority opinion offers little guidance for lower courts, other than to say in a footnote that “the existence of an uneconomic remnant will not always turn on the percentage of land or the percentage of value taken by the condemnor. The existence of an uneconomic remnant almost always turns on the economic viability of what is left after the taking.” Footnote 25. This offers practitioners and judges no guidance at all.

The Wallers are entitled to litigation expenses. The court found that the Wallers were entitled to litigation expenses under Wis. Stat. § 32.28(3)(b), which provides that litigation expenses shall be awarded to landowners “if … [t]he court determines that the condemnor does not have the right to condemn part or all of the property described in the jurisdictional offer.” The court reasoned that ATC did not have the right to condemn only the part of the property “sought to be taken” in the jurisdictional offer because that would leave an uneconomic remnant. Therefore, the landowner was entitled to litigation expenses.

The Wallers are “displaced persons” and entitled to relocation benefits. The court found that the Wallers were “displaced persons” entitled to relocation benefits because they moved “as a direct result” of ATC’s jurisdictional offer, and the circuit court’s findings of fact on that issue were not clearly erroneous.

Perhaps the “procedural quagmire” caused by Waller will prompt legislative action that will avoid the substantial inefficiencies and ambiguities caused by the decision. As it stands now, taxpayers and ratepayers are likely to pay more in the future for two reasons: (i) condemnors may be more likely to purchase the entire property if the landowner threatens an uneconomic remnant claim, and (ii) if the condemnor does not make the offer and the landowner makes good on its threat, the cost of litigation will rise substantially.

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For more information about "Condemnation and the Uneconomic Remnant," contact Steven M. Streck at sstreck@axley.com or 608.283.6721 or Timothy D. Fenner at tfenner@axley.com or 608.283.6733.