Daily Development for Wednesday, February 6, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

EMINENT DOMAIN; DAMAGES; CONSEQUENTIAL DAMAGES: As a matter of first impression in the district of Columbia, the D.C. Court of Appeals finds that the owner of a gasoline service franchise business, leasing land taken by the District by eminent domain, is not entitled to compensation for business losses, goodwill, and other consequential damages under the Fifth Amendment. 

Mamo v. District of Columbia, 934 A.2d 376 (D.C. 2007)

Plaintiff occupied a BP service station under a BP franchise.  When the District resolved to obtain plaintiff's property by eminent domain, the District's Project Director assigned to carry out this project wrote a letter to Plaintiff's attorney stating thatyour client will be properly compensated for his leasehold interest, his business, and his goodwill. 

In fact, under the terms of the BP lease, BP could terminate the lease in the event of condemnation, which it promptly did (in advance of the actual condemnation.)  Thus, as of the time of condemnation, Plaintiff had no interest in the property taken and the District negotiated a condemnation award to BP and paid BP, giving Plaintiff nothing.

Plaintiff brought a lawsuit alleging: (1) Plaintiff is entitled to damages for loss of a valuable business and goodwill under cases interpreting the Fifth Amendment of the U.S. Constitution; (2) Plaintiff is entitled to a split of the damages under the terms of the Federal Petroleum Marketing Practices Act (15 U.S.C. sec. 2802(d)(1).  (3) In any event, Plaintiff is entitled to compensation for hisleasehold interest, business and goodwill, due to estoppel based upon the letter promising such compensation described above. 

The appeals court affirmed the lower court's denial of relief to Plaintiff.

The court found that the U.S. Supreme Court decisions interpreting the Fifth Amendment make quite clear thatthe sovereign must pay only for what it takes, not for opportunities which the owner may lose.   Things like loss of good well or other consequential losses that would ensure from the sale of the property to someone other than the sovereign might be taken into account in figuring the price for such a sale, but need not be taken into account in eminent domain. 

Plaintiff cited a case involving a temporary taking in which the landowner was given compensation for business interference.  The court noted, however, that special considerations apply in the case of a temporary taking, as the condemnee is left with few options to open the business at another location. 

As to the Petroleum Marketing Act, the Act does provide that in the case of a termination or nonrenewal based upon condemnation (among other things) thefranchisor shall fairly apportion between the franchisor and franchisee compensation, if any, received by the franchisor based upon any loss of business opportunity or good will.  But the predicate of this statutory provision is that the franchisor in fact receive compensation for loss of business opportunity or good will.  Although the court didn't have before it the exact record of the award to BP here, the court concluded that there was no evidence of any award for good will.  But more to the point, the court indicated that at the time of such award, the franchisor had already terminated the lease pursuant to a lease provision permitting it to do so in the event of a taking.  The court commented that in such cases the lessee has alreadybargained away any right to share in the compensation award, and is outside the protecti
on of the Petroleum Marketing Act. 

The estoppel argument did require serious thought, of course, as the letter from the Project Director categorically promised compensation for loss of the lease and good will.  But the court concluded that the Project Director was not able to bind the District. [Why not?] Moreover, the court concluded that the Plaintiff had shown no reliance upon such representations.

Comment 1: The holding on the meaning of just compensation under the Fifth Amendment, is, so far as the editor knows, accurate and reasonably well established, despite the few cases cited by Plaintiff to bulk up a hopeless position.  Of course, some states and some statutory condemnation provisions may alter the general rule. 

Comment 2: The reading of the Petroleum Marketing Act strikes the editor as a bit severe.  As the editor understands, the purpose of the Act is to protect franchisees from overreaching by franchisors in connection with least terminations that leave franchisors overcommitted to the franchise and suffering significant lost investment.  The Act certainly could be read to override a lease provision termination the lease in the event of condemnation, and the editor wonders whether this hasn't occurred elsewhere, or whether it might so occur in the future.  But in any event it is unlikely that BP in fact got any good will compensation, so the point is moot here.

Comment 3: Plaintiff had the burden to show how he had relied on the letter by the Project Director.  The court cites no evidence of such reliance.  Obviously this was a significant failure by Plaintiff.  But what could Plaintiff have shown?  Likely the letter was written to pacify potential political opposition to the proposed eminent domain taking, even though it was already well down the road by the time the letter appeared.  Citizens who feel that their land is being taken unfairly often will throw themselves in front of trains to prevent the eminent domain project from proceeding.  Likely they'll not stop the project, but they'll often delay it, and embarrass the involved political interests. 

But is failure to undertake political opposition to a proposed public project the kind of reliance that supports an estoppel?  Probably not.  Better if the Plaintiff, anticipating an award of some kind, committed itself economically to a relocation plan that required the money that such an award might provide.  If that had happened here, it is likely the court would have known about it. 

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