Charter Twp of Lyon v. McDonalds Usa Llc ( 2012 )

Order Michigan Supreme Court
Lansing, Michigan
December 19, 2012 Robert P. Young, Jr.,
Chief Justice
143342 Michael F. Cavanagh
Marilyn Kelly
Stephen J. Markman
Diane M. Hathaway
CHARTER TOWNSHIP OF LYON, Mary Beth Kelly
Plaintiff-Appellee, Brian K. Zahra,
Justices
v SC: 143342
COA: 294074
Oakland CC: 2007-083871-CC
McDONALD’S USA, L.L.C.,
Defendant,
and
MILFORD ROAD EAST DEVELOPMENT
ASSOCIATES, L.L.C.,
Intervening Defendant-Appellant.
_________________________________________/
AMENDMENT TO ORDER
On order of the Court, this Court’s December 18, 2012 order is amended to read as
follows:
On order of the Court, leave to appeal having been granted and the briefs and oral
arguments of the parties having been considered by the Court, we hereby VACATE part
II.B and the first sentence of part IV of the Court of Appeals May 24, 2011 majority
opinion, which are unnecessary to the decision in this case. The appellant’s request for
relief is DENIED in all other respects.
CAVANAGH, MARILYN KELLY, and HATHAWAY, JJ., concur in the result.
ZAHRA, J. (dissenting).
I would reverse the Court of Appeals majority decision and reinstate the trial
court’s award to defendant-appellant Milford Road East Development Associates, L.L.C.
(defendant) of just compensation under the Uniform Condemnation Procedures Act
(MUCPA), MCL 213.51 et seq., in the amount of $1.5 million.
This case involves review of a verdict rendered after a bench trial in a
condemnation action. Defendant is the developer of Lyon Towne Center, located in
plaintiff Lyon Charter Township, south of I-96 and east of Milford Road. A related
company, Milford Road West Development Associates, L.L.C. (MRWDA) has the same
owners as defendant and is the developer of Lyon Crossing, a development also south of
I-96, but west of Milford Road. Defendant and MRWDA entered into two nearly
2
identical planned development agreements with plaintiff to develop the approximately
115 acres of vacant land. The developments were phased developments collectively
known as Lyon Centers. Defendant expended approximately $10 million to construct a
ring road called Lyon Center Drive to connect Lyon Towne Center and Lyon Crossing
and bring public sewer and water service to Lyon Centers. Before the development was
completed, plaintiff exercised its right of eminent domain to access these water and sewer
lines to benefit a neighboring private property owner.
Claiming that it merely desired “to expand its municipal public services, water and
sewer, to that portion of the township north of 1-96,” plaintiff asked McDonald’s USA,
L.L.C., which had purchased a unit in the condominium development, to grant it an
easement over its property. When defendant originally sold the unit to McDonald’s,
defendant, pursuant to the Lyon Towne Center Master Deed and Bylaws, “reserve[d] for
the benefit of itself . . . permanent easements to use, tap into, enlarge or extend all utility
facilities in the Condominium and servient estates . . . .” Defendant also reserved for
itself the right to approve or disapprove all future developments and improvements,
including utilities. McDonald’s thus refused to grant plaintiff the requested easement.
Plaintiff then filed this action against McDonald’s to condemn an easement for
permanent subsurface water and sewer utilities under the condominium unit within Lyon
Towne Center owed by McDonald’s. Defendant moved to intervene, noting that it
retained the above-mentioned property rights to the common elements of the Lyon Center
under the master deed and bylaws. In response, plaintiff maintained that defendant had
no property interest in the affected property and that no common elements are involved.
Plaintiff maintained this position throughout the proceedings.
The trial court awarded defendant $1.5 million as just compensation under the
UCPA. The Court of Appeals reversed the judgment in a 2-1 decision, concluding in part
that the trial court had wrongly awarded damages to defendant for being “outpositioned”
in the market place. 1 The Court of Appeals majority further concluded that the trial
court’s award constituted a “new theory of compensation” that would “seriously hinder
future economic growth, particularly in commercial and industrial markets.” 2
Like most condemnation actions, this case is factually intense. Omitted from the
Court of Appeals majority opinion are some undisputed facts that plainly influenced the
trial court’s decision and are, in my view, pertinent to appellate review. For example, the
automobile dealership that benefitted from plaintiff’s exercise of eminent domain had
previously been under contract to purchase property within defendant’s development.
The object of this contract never came to fruition because plaintiff withheld its approval
1
Lyon Charter Twp v McDonald’s USA, LLC, 292 Mich App 660, 675 (2011).
2
Id. at 673-674.
3
to place the dealership within defendant’s development. At the same time, plaintiff
rezoned nearby property to accommodate placement of an automobile dealership on that
property. After the dealership purchased the rezoned property, it was discovered that the
land would not percolate water, 3 thereby making it impossible to use septic tanks. The
dealership could be constructed in its new location only if the water and sewer lines that
defendant had paid approximately $10 million to extend to its property were further
extended to the rezoned parcel. Plaintiff was reluctant to exercise its power of eminent
domain and agreed to do so only after the dealership and its developer agreed to
indemnify and hold plaintiff harmless for its condemnation action. The trial court
observed that plaintiff not only prevented defendant from developing its property in
accordance with the phased development plan, but also diverted at least two would-be
purchasers of property within defendant’s development to land that could be developed
only because of plaintiff’s exercise of eminent domain.
In my view, this Court’s order vacating “part II(B) and the first sentence of part IV
of the Court of Appeals majority opinion, which are unnecessary to the decision in this
case,” but otherwise denying relief is troubling for several reasons. The order vacates the
portion of the Court of Appeals majority opinion relating to its interpretation of “parcel”
under the UCPA but otherwise denies relief and thus, by implication accepts the Court of
Appeals majority’s conclusion that, even if it had property rights that were affected by
the taking, defendant is simply not entitled to just compensation. In my view, while the
order properly leaves in place the Court of Appeals majority’s determination that
defendant has a property interest in the property that was taken, it improperly lets stand
the clearly erroneous determination that this property interest was limited because the
master deed or bylaws specify that any development was “subject to plaintiff’s approval.”
That plaintiff’s approval was required merely acknowledges that plaintiff has the right to
regulate all development. Though plaintiff could veto a project approved by the
developer, it did not have the right under the master deed or bylaws to compel an
extension of the public utilities as done here without paying defendant just compensation.
In other words, there is little dispute that defendant possessed property rights under the
master deed and bylaws that were affected by plaintiff’s taking.
The order also leaves unaddressed the significant issue of defining the “parcel” of
property affected by the taking under the UCPA. The UCPA defines a “parcel” as “an
identifiable unit of land, whether physically contiguous or not, having substantially
common beneficial ownership, all or part of which is being acquired, and treated as
separate for valuation purposes.” 4 The Court of Appeals majority held that because the
“common beneficial ownership between defendant and Milford Road West Development
3
“Percolating water that oozes or seeps through soil without a defined channel . . . .”
Black’s Law Dictionary (7th ed), p 1585.
4
MCL 213.51(g).
4
Associates is extraneous to the deeds,” it “is insufficient to grant an interest in the
McDonald’s easement to the common owners.” 5 However, as explained by amicus
curiae Michigan Chamber Litigation Center,
[t]he legislature did not limit the relevant ‘parcel’ for valuation purposes in
a condemnation case to the individually deeded lots within a development;
instead, it defined the relevant “parcel” to include the development as a
whole, so long as it is an “identifiable unit of land” subject to “substantially
common beneficial ownership.”
The Court of Appeals majority clearly erred by relying on the fact that the “common
beneficial ownership between defendant and Milford Road West Development
Associates is extraneous to the deeds” to conclude that Lyon Centers is not the pertinent
“parcel.” 6 In essence, the Court of Appeals majority engrafted on the definition of
“parcel” additional requirements not contained within it. Property under common, but
separate, ownership is often developed in phases, and it is foreseeable that, in future
condemnations, a taking from one phase of a commonly owned series of developments
may have significant effects on the value of property used in later (or simply other)
phases of the development. The Legislature expressly provided that parcels having
substantially common ownership might be deemed to be a single parcel, even when they,
as in this case, are not contiguous.
In my view, the erroneous interpretation of the term “parcel” also infected the
Court of Appeals majority decision in regard to the amount of just compensation. On one
hand, the Court of Appeals majority “assume[d], without deciding,” that Lyon Centers
was an identifiable unit of land with common ownership, yet on the other hand held that,
because the right of control defendant relied on derived from the master deed for the
Lyon Towne Center, which created no rights within Lyon Crossings, defendant could not
recover for any impairment of the value of Lyon Crossing. 7 Had the Court of Appeals
majority truly assumed without deciding that Lyon Centers was an identifiable unit of
land with common ownership, the Court of Appeals majority would have recognized that
the easement within Lyon Centers must necessarily also be subject to common
ownership.
Last, and most troubling, is that this Court’s order leaves in place a rule of law
barring just compensation awards when a condemning governmental entity characterizes
a loss of a property’s market value as attributable to being “outpositioned” in the market
place. While plaintiff correctly notes that no case directly supports this proposition,
5
Lyon Charter Twp, 292 Mich App at 670.
6
Id.
7
Id. at 669-670.
5
plaintiff concedes that no case directly contravenes this proposition either. Indeed, no
Michigan court has previously addressed the question of just compensation under these
particular circumstances. However, this does not mean that the trial court abused its
discretion by awarding defendant just compensation under these particular circumstances.
Instead, one may reasonably conclude that the trial court’s award merely compensated
defendant for plaintiff’s taking of defendant’s property rights in a manner that is wholly
consistent with the well-established principle that “[w]hen only part of a larger parcel is
taken, as is the case here, the owner is entitled to recover not only for the property taken,
but also for any loss in the value to his or her remaining property.” 8 In other words,
although these precise circumstances may never have been addressed by this Court
before, or perhaps more likely may never have been specifically identified in the
language of “outpositioning,” or “lost competitive disadvantage,” the broader principles
relied on by the trial court have certainly been addressed by this Court on many
occasions. Just as traditional principles of free speech apply in a countless array of new
circumstances regularly arising in courts throughout the land, e.g., hate crimes, campaign
finance restrictions, regulatory prohibitions on commercial speech, antiharassment laws,
etc., traditional principles of just compensation apply in a countless array of new
circumstances regularly arising in those same courts.
It is well established that the “proper measure of damages in a condemnation case
involving a partial taking consists of the fair market value of the property taken plus
severance damages to the remaining property if applicable.” 9 “The purpose of just
compensation is to put property owners in as good a position as they would have been
had their property not been taken from them.” 10 Accordingly, “the proper amount of
compensation for property takes into account all factors relevant to market value.” 11
[A] guiding principle when awarding just compensation in a
condemnation suit is to “neither enrich the individual at the expense of the
public nor the public at the expense of the individual” but to leave him “in
8
M Civ JI 90.12.
9
Dep’t of Transp v VanElslander, 460 Mich 127, 130 (1999) (citations and quotation
marks omitted); see also 13 Powell, Real Property, § 79F.04[3][a], p 79F-66.1 (“The law
is well settled that takings of a part of an owner’s land require not only that the owner be
paid for the portion of the property that is taken, but also for any diminution in value to
the property that remains.”).
10
VanElslander, 460 Mich at 129 (citations and quotation marks omitted).
11
Silver Creek Drain Dist v Extrusions Div, Inc, 468 Mich 367, 379 (2003) (emphasis
added), see also VanElslander, 460 Mich at 129 (“Just compensation means the full
monetary equivalent of the property taken.”) (emphasis added) (citations and quotation
marks omitted).
6
as good a position as if his lands had not been taken.” Thus, in a partial
taking, the formula to calculate the fair market value of the remainder
parcel must account for the fact that damages will vary from case to case,
depending on the unique circumstances of each taking. Restoring the
individual to his position before the taking will require a flexible, case-by-
case approach to damages.[12]
Just compensation
“may perhaps depend on the effect which the appropriation may have on
the owner’s interest in the remainder, to increase or diminish its value, in
consequence of the use to which that taken is to be devoted, or in
consequence of the condition of the condition [sic] in which it may leave
the remainder in respect to convenience of use . . . .”[13]
“In considering the effect of the taking upon the remainder, the after value must take into
account the proposed use of the project and the effect of that use upon the remainder.” 14
“Damages to the remainder that are to be reasonably anticipated from use of the property
for the purpose for which the condemnation is made, are relevant in determining the
compensation to be awarded for the taking.” 15 “Further, in valuing what is left after the
taking, you must assume that the [condemning authority] will use its newly acquired
property rights to the full extent allowed by the law.” 16 Defendant’s appraiser testified
that the value of the remainder was reduced by $3 million as a result of the taking. 17
Plaintiff failed to offer an alternative estimate. As mentioned, plaintiff took the position
throughout the proceedings that defendant’s property rights were not affected by the
taking. 18
12
Dep’t of Transp v Tomkins, 481 Mich 184, 198 (2008) (citation omitted).
13
Tomkins, 481 Mich at 207, quoting 1 Cooley, Constitutional Limitations (1st ed), p
565.
14
4A Nichols, Eminent Domain (3d ed), § 14A.06[3], p 14A-127.
15
Id. at 14A-129.
16
M Civ JI 90.12.
17
See 13 Powell, § 79F.04[3][b][ii], p 79F-66.2 (“[s]everance damages equal the
difference between the value of the entire tract before the taking and the value of the
remainder after the taking.”).
18
It should be noted that plaintiff did argue that any property interest was not affected
because, as a practical matter, the water and sewer lines would be installed underground
with directional boring and would not disrupt the surface of the property. Plaintiff
obviously cannot support the proposition that property rights are only affected by a
physical disruption to the property.
7
Further, the Court of Appeals majority wholly failed to apply the correct standard
of review in this case. A trial court’s award of just compensation is reviewed for an
abuse of discretion: “The amount of damages to be recovered by the property owner is
generally left to the discretion of the trier of fact after consideration of the evidence
presented.” 19 “The determination of value and just compensation in a condemnation case
is not a matter of formula or artificial rules, but of sound judgment and discretion based
upon a consideration of all of the evidence . . . .” 20 An abuse of discretion occurs when
the trial court chooses an outcome falling outside the range of principled outcomes. 21
The standard is only once mentioned by the Court in a passing reference to Oakland
County Board of County Road Commissioners v Bald Mountain West, 22 in which the
Court of Appeals held that the trial court did not abuse its discretion by admitting the
defendant’s appraiser’s testimony. The Court of Appeals majority in this case simply did
not review the trial court’s decision to determine whether the trial court had abused its
discretion. Rather, the Court of Appeals majority struck down the trial court’s decision
as a matter of law even though, as mentioned, no Michigan court has previously
addressed the question of just compensation under these circumstances.
The trial court relied on the principles discussed earlier and the Michigan Civil
Jury Instructions to calculate the award. M Civ JI 90.12 provides that, in valuing
property left after a partial taking, the fact-finder should take into account the following
factors:
(1) its reduced size, (2) its altered shape, (3) reduced access, (4) any change
in utility or desirability of what is left after the taking, (5) the effect of the
applicable zoning ordinances on the remaining property, and (6) the use
which the [condemning authority] intends to make of the property it is
acquiring and the effect of that use upon the owner’s remaining
property.[23]
The trial court applied these factors in arriving at its award.
Only defendant submitted evidence to the trial court regarding just compensation.
Defendant’s appraisal expert did not base his opinion on the increased value of the
19
VanElslander, 460 Mich at 129.
20
M Civ JI 90.05.
21
People v Babcock, 469 Mich 247, 269 (2003).
22
Oakland Co Bd of Co Rd Comm’rs v Bald Mountain West, unpublished opinion per
curiam of the Court of Appeals, issued February 14, 2008 (Docket No. 275230).
23
Emphasis added.
8
otherwise useless land owned by the dealership. Rather, the expert focused on the value
of defendant’s parcel. The expert concluded that defendant’s parcel was reduced in value
by $3 million as a result of the taking. Significantly, the trial court noted that plaintiff
submitted no alternative appraisal report. In determining the value after the taking,
defendant’s expert accounted for the loss of desirability, loss of marketability, the
purpose for which plaintiff was going to use the property taken (to create a commercial
enterprise on property that otherwise could not be developed), and the effect of that use
on the owner’s remaining property. The expert opined that the remaining unsold and
unoccupied property in defendant’s development directly suffered as a result of the act of
governmental taking.
As a consequence of the Court of Appeals majority decision, and our limited
action here, defendant, whose property rights were undisputedly taken by the
government, receives nothing. For this reason, I question the Court of Appeals majority’s
conclusion that affirming the award in favor of defendant “would seriously hinder future
economic growth, particularly in commercial and industrial markets.” 24 What developer
will invest multiple millions of dollars to develop unused land knowing that the
government can take the developer’s property rights to the benefit of a private sector
competitor without compensating the developer for the resulting diminution in the value
of the property?
Further, I question the validity of the Court of Appeals majority’s policy argument
that “[t]o allow an award for lost competitive advantage would be to allow the first
developer in a geographic area to monopolize real estate by placing unreasonably high
cost barriers for competitors to tap into public utility lines.” 25 First, the competitor ran
the risk that public utility lines would not be available when it purchased
24
Lyon Charter Twp, 292 Mich App at 673-674.
25
Id. at 675.
9
property for which the competitor believed it would not need to tap into public utility
lines. Second, the competitor here did not negotiate the extension of public utilities with
defendant. Rather, the competitor unilaterally lobbied plaintiff to condemn an easement.
Third, any monopolization of public utility lines could have been avoided had plaintiff at
all indicated a desire to extend those public utility lines north of I-96 through Lyon
Centers. Plaintiff expressly agreed to a submitted “utility and grading plan,” a “storm
water management” plan, and various other design documents incorporated within the
planned development agreements. There is no evidence that any of these documents
considered the possibility of extending utility lines outside of Lyon Crossing. Only after
defendant installed utility lines at significant cost to benefit its condominium units and
the condominium project in general did plaintiff consider extending the utility lines in
this manner. In my view, plaintiff was in the best position to prevent any so-called
monopolistic effect by negotiating the extension of utility lines over private property in
the planned development agreements.
After taking these property rights, plaintiff in essence gave these rights to a private
entity, no doubt with the expectation of generating additional tax revenue for the very
taking it had facilitated. All this was done while being indemnified and held harmless by
the private entity that benefitted from plaintiff’s actions. The trial court did not err by
concluding that Lyon Centers was the relevant parcel and that defendant had property
rights that were affected by plaintiff’s taking. Further, the trial court did not abuse its
discretion in awarding defendant just compensation. I would reverse the judgment of the
Court of Appeals and reinstate the trial court’s judgment.
MARKMAN and MARY BETH KELLY, JJ., join the statement of ZAHRA, J.
I, Corbin R. Davis, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
December 19, 2012 _________________________________________
t1217 Clerk