United States v. 0.073 Acres of Land, More or Less, Situate in Parishes of Orleans & Jefferson

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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 28, 2013
No. 11-31167 Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.073 acres of land, more or less, situate in Parishes of Orleans and Jefferson,
State of Louisiana, et al.,
Defendants
MARINER’S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.071 acres of land, more or less, situate in Parishes of Orleans and Jefferson,
State of Louisiana, et al.
Defendants
MARINER'S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
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No. 11-31167
___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.139 acres of land, more or less, situate in Parish of Orleans, State of
Louisiana, et al
Defendants
MARINER'S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.134 acres of land, more or less, situate in Parishes of Orleans and Jefferson,
State of Louisiana, et al.
Defendants
MARINER'S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
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___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.135 acres of land, more or less, situate in Parishes of Orleans and Jefferson,
State of Louisiana, et al.
Defendants
MARINER'S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.072 acres of land, more or less, situate in Parishes of Orleans and Jefferson,
State of Louisiana, et al.
Defendants
MARINER'S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
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___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
0.153 acres of land, more or less, situate in Parishes of Orleans and Jefferson,
State of Louisiana, et al.
Defendants
MARINER'S COVE TOWNHOMES ASSOCIATION, INCORPORATED,
Appellant
Appeal from the United States District Court
for the Eastern District of Louisiana
Before STEWART, Chief Judge, and KING and OWEN, Circuit Judges.
PER CURIAM:
In this eminent domain case, Appellant Mariner’s Cove Townhomes
Association appeals the district court’s grant of judgment on the pleadings for
the United States. The district court held that the Association was not entitled
to just compensation for the diminution of its assessment base resulting from the
government’s condemnation of fourteen properties in the Mariner’s Cove
Development. The question before us is whether the loss of the Association’s
right to collect assessments on those properties requires just compensation
under the Takings Clause of the Fifth Amendment. For the following reasons,
we hold that this right was not compensable, and AFFIRM the district court’s
judgment.
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I. FACTS AND PROCEDURAL HISTORY
Mariner’s Cove Development (“Mariner’s Cove”) is a residential community
consisting of fifty-eight townhomes located near Lake Pontchartrain and the
17th Street Canal. The Mariner’s Cove Townhomes Association (“MCTA”) is a
homeowner’s association and non-profit corporation that provides residential
services to the townhouses in Mariner’s Cove. In exchange for the services
provided, MCTA periodically collects assessments from each of the fifty-eight
property owners pursuant to the “Declaration of Servitudes, Conditions and
Restrictions of Mariner’s Cove Townhomes Association, Inc.” (“Declarations”),
which was recorded on July 28, 1977, and created servitudes and covenants, as
well as other conditions and obligations that run with the land. The Declarations
provide that each owner of a lot in Mariner’s Cove pays a proportionate 1/58
share of the expense of maintenance, repair, replacement, administration, and
operation of the properties in Mariner’s Cove.
Mariner’s Cove suffered substantial damage from Hurricane Katrina.
After Katrina, the United States Army Corps of Engineers (“Corps”) began to
repair and rehabilitate the levee adjacent to Mariner’s Cove, and began to
construct an improved pumping station at the 17th Street Canal. The Corps
later determined that it needed to acquire fourteen of the fifty-eight units in
Mariner’s Cove to facilitate its access to the pumping station.
While the government was negotiating the acquisition of those properties
with their owners, MCTA claimed that it had an interest in those properties
based upon the rights and obligations conferred by the Declarations. Specifically,
MCTA claimed that it was entitled to just compensation for the loss of its right
to collect assessments on the properties, as set forth in the Declarations. The
government reached agreements with each of the landowners for the purchase
of the fourteen properties, but did not resolve MCTA’s claim.
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In June 2009, the government filed condemnation actions against each of
the fourteen properties. The government named MCTA as a purported owner in
each proceeding based on MCTA’s claimed interest. The district court issued an
order in each proceeding granting the United States possession of the fourteen
properties. It later consolidated the condemnation actions.
After the government took possession of the properties, MCTA filed an
answer to the government’s complaints in condemnation.1 MCTA claimed that
the government was obligated to pay the yearly assessments arising from the
Declarations since the Corps’s occupation in September 2005, and for the
reasonable lifetime of a townhomes association such as Mariner’s Cove, as
compensation for the diminution of its assessment base. In the alternative,
MCTA claimed that it is entitled to a lump sum payment which, if invested
conservatively and adjusted for inflation, is a principal amount capable of
generating annual interest sufficient to make up the shortfall in funds owed.
In response to the MCTA’s answer, the government filed a motion for
judgment on the pleadings, arguing that MCTA had no continuing right to levy
assessments on the condemned properties because the United States acquired
perfect title to them under eminent domain. The government also argued that
the losses MCTA claimed were not compensable under the Fifth Amendment
because the losses were merely incidental to the taking, as MCTA had no
ownership interest in the fourteen properties themselves. MCTA opposed and
moved for partial summary judgment, requesting that the district court
recognize MCTA’s property rights and the obligation of the government to
provide just compensation for the taking of these rights.
The district court granted the government’s motion, and consequently it
dismissed MCTA’s motion as moot. The district court found that “once the
1
MCTA answered as an interested party under Federal Rule of Civil Procedure 71.1.
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declaration of taking and the deposit for just compensation are filed, the
property vests in the United States under the Declarations of Takings Act,” and
all existing possessory and ownership interests not specifically excepted are
extinguished. Because the interests alleged by MCTA were not excepted, the
district court found that MCTA had no present possessory interest in the
condemned properties. The district court then turned to the question whether
MCTA’s interest in the assessments prior to the governmental taking was
compensable under the Takings Clause.
Observing that this circuit has not ruled whether the diminution of an
assessment base is a compensable loss under the Takings Clause, the district
court considered the case upon which MCTA chiefly relies: Adaman Mutual
Water Co. v. United States, 278 F.2d 842 (9th Cir. 1960). The district court ruled
that MCTA failed to show that its interest was compensable because Adaman
was inapposite, and because MCTA did not cite any case adopting the Adaman
holding other than one factually similar to Adaman. Finally, the district court
gave two reasons why Louisiana state law does not disturb the court’s ruling
that MCTA’s interest was not compensable: (1) Louisiana courts have not
“addressed whether building restrictions that require affirmative action, or
building restrictions in general, are a compensable property interest,” and (2)
“federal law controls on the issue of compensability.”
The district court entered its judgment on November 18, 2011, and MCTA
timely filed a notice of appeal.
II. STANDARD OF REVIEW
We review de novo a grant of judgment on the pleadings under Federal
Rule of Civil Procedure 12(c). United States v. Renda Marine, Inc., 667 F.3d 651,
654 (5th Cir. 2012). We look only to the pleadings and accept all allegations
contained therein as true. Id. The nonmovant, “must plead ‘enough facts to state
a claim to relief that is plausible on its face.’” Doe v. MySpace, Inc., 528 F.3d 413,
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418 (5th Cir. 2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “Pleadings should be construed liberally, and judgment on the pleadings
is appropriate only if there are no disputed issues of material fact and only
questions of law remain.” Brittan Commc’ns Int’l Corp. v. Sw. Bell Tel. Co., 313
F.3d 899, 904 (5th Cir. 2002). “The central issue is whether, in the light most
favorable to the plaintiff, the complaint states a valid claim for relief.” Id.(quoting Hughes v. The Tobacco Inst., Inc., 278 F.3d 417, 420 (5th Cir. 2001)).
III. DISCUSSION
This case presents a question of first impression in this circuit: whether
the federal government must provide just compensation under the Takings
Clause of the Fifth Amendment when it condemns property burdened by a
plaintiff’s right to collect assessments and thereby diminishes the plaintiff’s
assessment base. In granting the government’s motion for judgment on the
pleadings, the district court held that MCTA was not entitled to just
compensation for the loss of its assessment base that resulted from the
government’s condemnation of properties in Mariner’s Cove. We hold that
MCTA’s right to collect assessments is not a compensable property interest
under the Constitution, and affirm the district court’s judgment.
A. Takings Clause Principles
The Takings Clause of the Fifth Amendment provides that private
property shall not be taken for public use without just compensation. “The
critical terms are ‘property,’ ‘taken’ and ‘just compensation.’” United States v.
Gen. Motors Corp., 323 U.S. 373, 377 (1945).
Discussing the Constitution’s use of the term “property,” the General
Motors Court stated:
When the sovereign exercises the power of eminent domain it
substitutes itself in relation to the physical thing in question in
place of him who formerly bore the relation to that thing, which we
denominate ownership. In other words, it deals with what lawyers
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term the individual’s “interest” in the thing in question. . . . The
constitutional provision is addressed to every sort of interest the
citizen may possess.
Id. at 378 (footnote omitted). “Though the meaning of ‘property’ . . . in the Fifth
Amendment is a federal question, it will normally obtain its content by reference
to local law.” United States ex rel. Tenn. Valley Auth. v. Powelson, 319 U.S. 266,
279 (1943); see also Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984)
(“[W]e are mindful of the basic axiom that ‘[p]roperty interests . . . are not
created by the Constitution. Rather, they are created and their dimensions are
defined by existing rules or understandings that stem from an independent
source such as state law.’” (second and third alterations in original) (quoting
Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 161 (1980) (internal
quotation marks and citation omitted))). Thus, Louisiana law governs whether
MCTA’s right to collect assessments is a property interest. See United States v.
131.68 Acres of Land, 695 F.2d 872, 875 (5th Cir. 1983).
The General Motors Court also expounded on the meaning of the term
“taken” as it appears in the Takings Clause:
In its primary meaning, the term “taken” would seem to signify
something more than destruction, for it might well be claimed that
one does not take what he destroys. But the construction of the
phrase has not been so narrow. The courts have held that the
deprivation of the former owner rather than the accretion of a right
or interest to the sovereign constitutes the taking. Governmental
action short of acquisition of title or occupancy has been held, if its
effects are so complete as to deprive the owner of all or most of his
interest in the subject matter, to amount to a taking.
323 U.S. at 378. Contrary to the government’s assertion at oral argument, we
understand takings analysis to be centered on the deprivation of a former
owner’s property interest, and not on the accretion of that interest to the
government. The Supreme Court in General Motors emphasized that a
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constitutional taking only occurs with respect to property, and not with
collateral, non-property interests:
whether the sovereign substitutes itself as occupant in place of the
former owner, or destroys all his existing rights in the subject
matter, the Fifth Amendment concerns itself solely with the
“property,” i.e., with the owner’s relation as such to the physical
thing and not with other collateral interests which may be incident
to his ownership.
Id. In short, the government is required to provide just compensation if the
interest for which compensation is sought is a property interest or right, and
that interest has actually been taken.2 Id. at 377-78.
B. MCTA’s Right To Collect Assessments
This case turns on whether MCTA’s right to collect assessments is a
compensable property right under the Takings Clause. This question has two
parts: whether the right to collect assessments is a property right, and if so,
whether it is compensable under the Takings Clause.
1. Intangible Property
We begin by addressing whether MCTA’s right to collect assessments is
property. The district court, in its ruling, did not find that this right was not
property, and the government has not argued to the contrary. Indeed, there is
good reason to find that MCTA’s right to collect assessments is property.
Louisiana law suggests that this right is called a building restriction.
First, it is necessary to explain what “building restriction” means in the
language of Louisiana’s civil law system. Under Louisiana law, building
restrictions are “incorporeal immovables.” La. Civ. Code art. 777. “[I]ncorporeal
immovables” are “[r]ights and actions that apply to immovable things”). La. Civ.
Code art 470. “Immovables” simply means property that is not a “movable.” La.
2
The General Motors Court understood “just compensation” in ordinary cases to be the
fair market value of the interest taken. 323 U.S. at 379 (“In the ordinary case, for want of a
better standard, market value, so-called, is the criterion of that value.”).
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Civ. Code art. 448 (“Things are divided into . . . movables and immovables.”).
And “movables” are what the name suggests: “things . . . that normally move or
can be moved from one place to another.” La. Civ. Code art. 471. Thus,
“immovables” refers to a broad category of immovable property that includes
tracts of land and their component parts. La. Civ. Code art. 462. The modifier
“incorporeal” simply means “intangible.” See S. Cent. Bell Tel. Co. v. Barthelemy,
643 So. 2d 1240, 1244 (La. 1994) (“[T]he civilian concept of corporeal movable
encompasses all things that make up the physical world; conversely,
incorporeals, i.e., intangibles, encompass the non-physical world of legal
rights.”); see also La. Civ. Code art. 461 (“Incorporeals are things that have no
body, but are comprehended by the understanding such as . . . servitudes [and]
obligations . . . .”). By logical inference from the definitions at hand, an
intangible right that applies to a tract of land is an incorporeal immovable.
In Tri-State Sand & Gravel, L.L.C. v. Cox, a Louisiana appeals court
confirmed that under Louisiana law, one duty that building restrictions may
impose on owners of real property is the affirmative duty to pay assessments.
871 So. 2d 1253, 1256 (La. Ct. App. 2004). Louisiana statutory law supports
recognition of the affirmative duty to pay assessments as a building restriction.
See La. Civ. Code art. 778 (“Building restrictions may impose on owners of
immovables affirmative duties that are reasonable and necessary for the
maintenance of the general plan.”); Oakbrook Civic Ass’n, Inc. v. Sonnier, 481
So.2d 1008, 1010 (La.1986) (same); see also 4 La. Civ. L. Treatise, Predial
Servitudes § 195 (3d ed.) (“Provisions that each purchaser of a lot in a
subdivision shall automatically become a member of a corporation formed to
provide maintenance of the common grounds, and that each member shall be
subject to an annual assessment, have been enforced as reasonable and
necessary.”). Thus, the right to collect assessments is a building restriction
under Louisiana law, and by extension, an intangible (incorporeal) right.
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In common law terminology, building restrictions are real covenants.3
Louisiana caselaw recognizes prohibitive building restrictions as restrictive
covenants. Nepveaux v. Linwood Realty Co., 435 So.2d 589, 593 (La. Ct. App.
1983), writ denied 441 So.2d 750 (La. 1983) (describing building restriction that
restricted property usage to residential purposes only as a “restrictive
covenant”). Restrictive covenants, by definition, are a type of real covenant.4
Because MCTA’s right to collect assessments is an affirmative building
restriction, it seems inappropriate to cast it into the negative mold of a
restrictive covenant. Rather, it follows that if negative building restrictions are
restrictive covenants, then affirmative restrictions are affirmative covenants.
Moreover, Louisiana caselaw recognizes the right to collect assessment fees as
a covenant that runs with the land. Town S. Estates Homes Assoc., Inc. v.
Walker, 332 So.2d 889 (La. Ct. App..1976). Thus, we find that MCTA’s right is
best understood as a building restriction, but more generally may be viewed—in
terms of its common law analogue—as a real covenant.
2. Compensability
Having found that MCTA’s right to collect assessments is a property
interest, we now turn to the question whether it is compensable. One of the
government’s main arguments on appeal is that the loss of MCTA’s assessment
3
The record indicates that MCTA’s right to collect assessments was made appurtenant
to the properties in Mariner’s Cove through the Declarations. Thus, like real covenants
generally, MCTA’s right to collect assessments runs with the land. See, e.g., 20 Am. Jur. 2d
Covenants, Etc. § 18 (2012) (“A real covenant runs with the land, while a personal covenant
usually does not run with the land.” (footnotes omitted)).
4
Compare Black’s Law Dictionary 421 (9th ed. 2009) (defining “restrictive covenant”
as “[a] private agreement, [usually] in a deed or lease, that restricts the use or occupancy of
real property”), with id. (defining “real covenant” or “covenant running with the land” as “[a]
covenant intimately and inherently involved with the land and therefore binding subsequent
owners and successor grantees indefinitely”).
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base was incidental to the condemnation, and thus barred by the consequential
loss rule. We agree, and affirm the district court’s judgment on this basis.
a. The Consequential Loss Rule
In General Motors, the Supreme Court explained the consequential loss
rule as follows:
The sovereign ordinarily takes the fee. The rule in such a case is
that compensation for that interest does not include future loss of
profits, the expense of moving removable fixtures and personal
property from the premises, the loss of good-will which inheres in
the location of the land, or other like consequential losses which
would ensue the sale of the property to someone other than the
sovereign. . . . [T]he courts have generally held that [such losses] are
not to be reckoned as part of the compensation for the fee taken by
the Government. . . . Even where state constitutions command that
compensation be made for property “taken or damaged” for public
use, as many do, it has generally been held that that which is taken
or damaged is the group of rights which the so-called owner
exercises in his dominion of the physical thing, and that damage to
those rights of ownership does not include losses to his business or
other consequential damage.
323 U.S. at 379-80 (footnote omitted). The General Motors Court contrasted
compensable losses of property (“rights of ownership”) with noncompensable
losses of interests other than property. In Adaman, the Ninth Circuit briefly
described this rule as requiring that “the Government . . . pay for all tangible
interests actually condemned and for intangible interests directly connected with
the physical substance of the thing taken.” Adaman, 278 F.2d at 845.
We recognize that the cases the government cites in support of its
argument do not concern losses of property. They concern business losses and
frustration of contracts. See Mitchell v. United States, 267 U.S. 341, 343 (1925)
(destruction of a business growing and canning a variety of corn that grew on
condemned land was not a compensable loss); Omnia Commercial Co. v. United
States, 261 U.S. 502, 508-09 (1923) (impairment of a commercial steel contract
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was not compensable); Bothwell v. United States, 254 U.S. 231, 232 (1920) (loss
resulting from a sale of cattle below fair market value after the construction of
a government dam flooded farmland was not compensable); Hooten v. United
States, 405 F.2d 1167, 1168 (5th Cir. 1969) (per curiam) (frustration of rent
collection contracts resulting from condemnation of tenement properties was not
compensable). Nevertheless, we find that the consequential loss rule applies
because MCTA’s right to collect assessments is a real covenant that functions
like a contract and, in the words of the Adaman court, is not “directly connected
with the physical substance of the [land].” 278 F.2d at 845.
Neither this court nor Louisiana courts have ruled whether the right to
collect assessments, or real covenants generally, are compensable under the
Takings Clause.5 Nor is there relevant statutory law. Moreover, the decisions in
other states addressing this question are legion and conflicting.6 Various texts
recognize the interjurisdictional conflict on this issue, the most useful being
Nichols on Eminent Domain. 2 Nichols on Eminent Domain § 5.07[4], p.
5–366-72 (3d ed. 2012). “The majority view holds that a restrictive covenant or
equitable servitude constitutes property in the constitutional sense and must be
5
Louisiana courts have addressed whether use restrictions—a type of restrictive
covenant—are compensable interests, finding that they are not. See Gremillion v. Rapides
Parish Sch. Bd., 134 So. 2d 700, 703 (La. Ct. App. 1961), rev’d on other grounds, 140 So. 2d 377(La. 1962); Hosp. Serv. Dist. No. 2 v. Dean, 345 So. 2d 234, 237 (La. Ct. App. 1977) (“We now
reaffirm the reasoning of Gremillion and conclude that the appellants are not entitled to
compensation for the loss of their right to enforce the restrictive covenants.”). The reasoning
in both cases is twofold: (1) “any restriction that property cannot be used for governmental
purposes . . . is unenforceable ab initio,” and may be “void as against public policy”; (2) “[t]he
state's right to acquire such land for [public] purposes cannot be restricted by a private
contract between private parties, to which the state is not a party; nor can such a private
contract impose upon the state liability beyond that allowed in the absence of the contract.”
Dean, 345 So. 2d at 236-37 (quoting Gremillion, 134 So. 2d at 702).
6
See 2 Nichols on Eminent Domain § 5.07[4], p. 5–366-72 (3d ed. 2012) (listing cases
reaching conflicting holdings on the issue of compensability of restrictive covenants).
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compensated for if taken.”7 Id. § 5.07[4][a], p. 5–367-69. However, there is a
strong minority view that these interests are not compensable. Id. § 5.07[4][b],
p. 5–370-72. Several theories grounded in public policy concerns support the
minority view.8 One such theory is rooted in the concern that private covenants
might unduly burden the government’s ability to exercise its power of eminent
domain. See id. § 5.07[4][b], p. 5–370-71. Another theory is that real covenants
are akin to contracts; that no contract of private persons can make acts done in
the proper exercise of governmental powers, and not directly encroaching upon
private property, a taking; and that “contracts purporting to do this are void, as
against public policy.” United States v. Certain Lands (In re Newlin), 112 F. 622,
aff’d, 153 F. 876 (C.C.R.I. 1907); see also 2 Nichols on Eminent Domain §
5.07[4][b], p. 5–371 (“Denial of compensation has also been justified on the
ground that these restrictions do not constitute property at all, but are merely
7
We recognize that our discussion of Nichols concerns restrictive covenants, and that
we have defined MCTA’s right as a real covenant. We previously highlighted the distinction
between these terms for precision’s sake, as restrictive covenants are merely a species of real
covenants. See Black’s Law Dictionary 421 (9th ed. 2009) (defining these terms). However,
because these forms of property are so closely related, the reasons for denying compensation
for restrictive covenants extends to the type of real covenant at issue in this case.
8
Nichols summarizes these theories as follows:
Some argue that restrictive covenants are not property interests and may be
taken without payment of compensation. The basis of this claim is that private
covenant restrictions were not intended to apply against public improvements
and that the rights of the condemnor are impliedly excepted from operation of
the restrictive covenant.
Other courts have held that restrictive covenants cannot be property because
they would limit the power of a legislature; any such limitations would be void
as against public policy since they constitute an attempt to prohibit the exercise
of the sovereign power of eminent domain.
Another argument against viewing these covenants as property is that since the
state has the power to condemn the fee before the imposition of a restrictive
covenant, the placing of the additional burden on the land does not create a new
compensable interest.
2 Nichols on Eminent Domain § 5.07[4][b], p.5–370-71.
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contract rights that need not be compensated for in eminent domain.” (citations
omitted)). We share these concerns, and view the right to collect assessments,
and similar real covenants, as fundamentally different in the takings context
from other compensable intangible property, such as easements.9
MCTA’s right to collect assessments is an affirmative real covenant: the
Declarations provide that landowners in Mariner’s Cove must pay assessment
fees, which MCTA is entitled to collect. These assessments enable MCTA to
maintain Mariner’s Cove. But MCTA’s right is unlike recognized forms of
compensable intangible property, such as easements, in that it is not directly
connected with the physical substance of the properties on which the
assessments are made. The nature of the covenant between MCTA and the
landowners in Mariner’s Cove is functionally contractual. But for its inclusion
in the Declarations, the real covenant for which MCTA seeks compensation
would amount to nothing more than a service contract between the landowners
in Mariner’s Cove and MCTA, with periodic assessments paid in exchange for
the maintenance of communal property. Viewed in this way, this case mirrors
the situations in the consequential loss cases cited by the government.
We believe that recognizing MCTA’s right as compensable under the
Takings Clause would allow parties to recover from the government for
condemnations that eliminate interests that do not stem from the physical
substance of the land. This would unjustifiably burden the government’s
eminent domain power. In addition, if we were to recognize MCTA’s right as
compensable, we would give special status under the Takings Clause to what
essentially is a contract, merely because it appears in a title document. Such a
9
The general rule is that “[w]hen one parcel of land is subject to an easement in favor
of another, and the servient tenement is taken for, or devoted to, a public use that destroys or
impairs enjoyment of the easement, the owner of the dominant tenement is entitled to
compensation.” 2 Nichols on Eminent Domain § 5.07[2][b], p. 5–347.
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formality alone cannot justify requiring the government to compensate MCTA
for the loss of its ability to collect assessments on the condemned properties. In
the absence of apposite federal and state law, these concerns guide our decision.
Thus, we hold that MCTA’s right to collect assessments is not a compensable
interest under the Takings Clause, and that MCTA was not entitled to
compensation for the loss of its assessment base.
b. Adaman
Having set forth our view as to why MCTA’s right is not compensable, we
address MCTA’s main argument: that Adaman is analogous to this case and
thus we should apply the Adaman court’s holding that the right to collect
assessments is compensable. We believe these two cases are sufficiently similar
that the Adaman court’s reasoning informs our approach to this case. But as
applied to the facts of the instant case, we find that the rationale in Adaman
compels us to reach the opposite conclusion, namely, that MCTA’s right to collect
assessments is not compensable under the Takings Clause.
i. Background
Adaman involved an agricultural project established in Arizona on dry
land where surface water for irrigation was unobtainable. 278 F.2d at 843.
Underground water from beneath the project lands “had to be pumped and
distributed, and to provide this service to the small farms envisioned in the
Project, at minimum cost, [Adaman], a mutual, non-profit corporation, was
organized.” Id. The owners of the land were entitled to one share of stock in
Adaman for each acre of land owned. Id. at 843-44. Each share of stock entitled
its owner to a prorata share of water. Id. at 844. Both water rights and stock
were made appurtenant to the land upon which the water was to be used. Id.Further, under the plan:
the stock and the land to which it [was] appurtenant [were] subject
to prorata assessments to be made from time to time by [Adaman]
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to pay both for the capital investment in the irrigation facilities and
for the operation and maintenance of the irrigation system. The
assessments, once made, [became] a lien on the land and on the
stock and water rights appurtenant thereto.
Id. No assessment could be made until the land was first cultivated. Id.The United States brought condemnation proceedings against 8.3 percent
of the land area within the project. Id. Adaman sued for compensation for its
interest in the assessments, lost in district court, and appealed. Id. at 850. The
Ninth Circuit determined that the only question raised on appeal was “whether
or not [Adaman was] entitled to be compensated for the loss of a portion of
Project land since the remaining area will be subject to increased assessments
in the future to pay for the maintenance, replacement and operation of the
communal irrigation system.” Id. at 844. “In other words,” the court wrote, “does
the diminution of [Adaman’s] assessment base constitute the taking of a
compensable interest under the Fifth Amendment?” Id.The Ninth Circuit found that the lower court was wrong to conclude that
Adaman had lost no compensable interest in the form of its reduced assessment
base. Id. at 850. The Adaman court was careful to note that its opinion rested
on “the assumption that the land condemned and taken by the Government had
corporate stock appurtenant to it and had also been brought under cultivation,”
which the court deemed important because “the stock subscription agreement
itself created the equitable servitude in favor of other stockholding landowners,
and the duty to pay assessments would not arise until the land to which it
attached had actually been brought under cultivation.” Id. Accordingly, the
Ninth Circuit vacated the district court’s judgment and remanded for “specific
findings of fact on these crucial points.” Id. The crux of Adaman’s holding was
that “under the Fifth Amendment a restrictive covenant imposing a duty which
runs with the land constitutes a compensable interest.” Id. at 849.
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ii. Application
We believe that the Adaman court correctly determined that the “pitfalls
of the consequential loss doctrine are avoided” where “a direct connection with
the physical substance [of the land] condemned” is established. Id. at 846.
Because the subject matter in this case—the right to collect assessments—is
analogous to that in Adaman, we find this rule to be applicable to the instant
case, and therefore we apply it. However, we reach the opposite result of the
Adaman court, and find that the consequential loss rule applies, because this
case differs from Adaman in two important respects, both of which evince the
absence of a direct connection between MCTA’s right to collect assessments and
the physical substance of the condemned properties.
First, in Adaman, the water company’s right to collect assessments was
directly connected to a tangible property right—the right to a prorata share of
water—enjoyed by landowners in the agricultural project. MCTA’s right to
collect assessments does not correspond to a tangible property right of the
landowners in Mariner’s Cove. It is inaccurate to view both cases as merely
involving an exchange of assessment fees for communal services. Whereas the
assessment fees that MCTA collected were used to maintain communal
structures (e.g., streets), the assessments collected by the water company not
only were used to provide a service (irrigation at the lowest possible cost), id. at
847, but also enabled the landowners in the agricultural project to exercise the
rights to the water underlying the project lands.10 This direct connection between
water rights and the right to collect assessments differentiates Adaman from the
instant case because the assessments collected by MCTA do not allow the
landowners in Mariner’s Cove to enjoy a tangible right arising from the land.
10
“The benefit derived from this servitude . . . is encompassed by the water rights
appurtenant to each parcel and runs with the land to the same extent as does the burden to
pay assessments.” Adaman, 278 F.2d at 847.
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Second, whereas MCTA collects assessments in order to collect trash,
maintain community streets, and provide similar services, the water company
in Adaman collected assessments in exchange for water that it extracted from
underneath the properties burdened by the obligation to pay the assessments.
Id. As the Adaman court noted, “the warranty deed and the agreement of sale
used by the [original landowner] reserved to it the rights in whatever water lay
underneath Project land.” Id. The assessments in Adaman were made in
exchange for a natural resource that was directly connected to the physical
substance of the land in that it physically inhered in the land itself. MCTA
points to nothing that would establish such a direct connection to the land.
Because no direct connection existed in the instant case, we find that the
consequential loss rule applies to MCTA’s loss.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment.
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