Daily Development for Wednesday, August 29, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

EMINENT DOMAIN; VALUATION; “UNITY OF OWNERSHIP:”  When valuing adjacent properties, the condemning authority must take into account the possibility of "unity of ownership" in a flexible way, using the "substantially identical ownership" test.  Union County Improvement Authority v. Artaki, LLC, 392 N.J. Super. 141, 920 A.2d 125 (App. Div. 2007); April 13, 2007.

Pursuant to New Jersey's Eminent Domain Act of 1971, a county improvement agency sought to acquire, by condemnation, a parcel of land owned by a limited liability company.  The company's members were two parents and their three children.  The agency also sought to condemn four other parcels, all owned solely or collectively by the members.  These condemnation actions were all made pursuant to a municipality's redevelopment ordinance and consequent rezoning of the area where these land parcels were all located.

The lower court found that the agency had properly exercised its eminent domain powers over the parcels in question.  Neither the company nor its members disputed this finding.  Instead, they disagreed with the prices proposed by the condemning authority.

The agency originally moved to consolidate the two matters for trial, later joined by the company and its members.  The agency then withdrew the motion, and the consolidation was denied. The company and its members argued that consolidation was proper because there was unity of title, use, and physical contiguity among all of the parcels in question.  The agency argued that the company and its members had filed for consolidation out of time, and that consolidation was inappropriate because separate tracts of land should be dealt with separately at trial.

The lower court considered a motion to consolidate even though made out of time, because it was an appropriate exercise of discretion and served the interests of justice.  It then ruled against consolidation because of the different types of ownership over the parcels of land – one of the lots was owned by the limited liability company, while the other four were owned individually by the company's members.  The lower court also found that these parcels lacked a unity of use that would merit consolidation of the actions.

On appeal, the Appellate Division noted that each of the parcels, while not owned in an identical way, shared some common ownership with the other parcels. While the present situation differed from previous case law in that percentage of ownership held by each individual was different, and because all of the disputed parcels were condemned in their entirety, the Court still found the case law supported construing "unity of ownership" in a flexible way.  It further found that the lower court failed to completely analyze the ownerships of each parcel under the "substantially identical ownership" test as established by prior case law.

The limited liability company had no written operating agreement addressing its management.  In the absence of this, the Court looked to provisions of the New Jersey's Limited Liability Company Act, which states that profits, losses, and other assets are to be allocated on the basis of the values of each member's contributions to the company.  Additionally, members who own more than a 50% membership interest of the interest may control the company.  Here, this was true of three of the individual owners, and the Court thus found that economic control and ownership of all of the parcels belonged to these three individual owners.  Thus, a commonality of ownership existed across all of the disputed parcels.

As a result, the Court reversed and remanded the issue for further consideration of the ownership and management structure of the corporation.

Unity of the parcels' uses had to be established by the landowners by showing that the lots were constituent parts of a single economic unit. Here, the company and its members argued that the parcels were all used as a "family enterprise," and had a shared accounting department. 

Tied to this idea, the Court held that the pivotal issue for the situation was that of "the highest and best use" of the lots.  The limited liability company and its members asserted that the reasonable value of the property could not be found by separately valuing each individual parcel; instead the total value of the whole tract was the best representation of value and that was also how the agency planned to utilize the parcels.  The Court, citing that a proposition that courts should be liberal in admitting evidence of market value, agreed with the whole tract methodology as being the "highest and best" use of the parcels.  As the lower court might have been influenced by the unity of ownership issue on the point of unity of use, the Court also sent this issue for remand.

Comment: This item was reported by Ira Meislick of the New Jersey bar.  Although most eminent domain cases necessarily deal only with local statutes and state Constitutional provisions, here we have a principle of interpretation that might be of great significance in the condemnation of family owned businesses or other entities that cooperate in the mutual use of separately owned properties. 

Family politics and historical business considerations might lead to a relatively vague set of ownership relationships even though properties are unified in use, and this case gives the eminent domain defendants considerable latitude in rasing these issue in valuation disputes. 
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