Daily Development for Thursday, February 13, 2003

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

EMINENT DOMAIN; TAKING; INVERSE CONDEMNATION; URBAN RENEWAL AREA: A city's designation of an area surrounding plaintiff's bowling alley as an urban redevelopment study area, together with certain statements from officials of the city stating that: (1) the city would not wish a bowling alley in the area , (2) owner should forego future investment in a new building, and (3) the city would likely acquire the property in a couple of years, was not sufficient to constitute inverse condemnation where the city did not physically invade the property, interfere with ingress or egress, or commence condemnation proceedings.

Duwa, Inc. v. City of Tempe, 52 P.3d 213 (Ariz. App. 2002).

Duwa owned a bowling alley in Tempe, Arizona. In the late 1980's and early 1990's, the area around Duwa's bowling alley began to deteriorate and experience an increase in crime. As a result, in 1996 Tempe designated the area surrounding Duwa's property as an urban redevelopment "study area." Thereafter, Duwa asserted, the Mayor of Tempe and the head of Tempe's Redevelopment Department indicated to representatives of Duwa that there would not be a place on the redevelopment of Apache Boulevard for a bowling alley. In addition, they indicated that Tempe would likely acquire Duwa's property in a couple of years and that Duwa should forego investment in a new bowling program called "cosmic bowling" unless it could recoup its investment in a couple of years. As a result, Duwa cancelled its plans for a renovation, informed bowling leagues that it could not guaranty complete bowling seasons. Duwa lost a substantial amount of business as a cause of this and was unable to make its mortgage payments.

Duwa filed an inverse condemnation complaint against the City of Tempe arguing that it suffered a "complete taking of its property on or about December 31, 1998 when it was forced to close its business operations." The City of Tempe filed a motion for summary judgment, arguing that there was no valid claim for inverse condemnation because Tempe had not asserted any physical control over Duwa's property.

The trial court granted the summary judgment as there was no physical invasion of Duwa's property nor substantial interference with ingress or egress. Duwa, citing a California case, noted that other courts have held that inverse condemnation arose out of precondemnation announcements by a public entity that reduced property values. The trial court noted that there was no Arizona counterpart for the California statute upon which the California court based its decision and refused to extend that decision to Arizona. Duwa appealed.

The Arizona Court of Appeals upheld the trial court's decision, noting that Tempe did not physically invade the property or otherwise interfere with ingress or egress. As to Duwa's argument that Tempe abused its condemnation powers by "specifically and unreasonably targeting Duwa's property" the court noted that in no other jurisdictions did the mere manifestation of an intent to condemn, even if coupled with specific representations regarding timing, constitute a de facto taking there must be some overt act by the government authority. The court particularly noted that if announcement of consideration of an impending condemnation constituted a de facto taking, it could hinder a condemning authority's ability to plan for condemnation and publicize its plans to the community.

The plaintiffs argued that the Arizona Constitution protected citizens not only from uncompensated public "takings' but also from uncompensated public "damage" to the property. The court acknowledged that a case might be made that the value of the plaintiffs' property was reduced as a consequence of the public actions, but indicated that the case law was clear that not all reductions in value are Constitutionally recognized "damage."

Comment 1: At least as the court gives us the plaintiff's position, it seems to be overreaching, since a significant element of the alleged damages arose when plaintiffs, responding to the private statements of city officials, told their regular bowling league customers that they couldn't guarantee a complete "league season," thus driving those customers to other bowling alleys. This judgment error cannot be laid to the feet of the City in any event, as no one at the City instructed the alley to cease operations.

Comment 2: The more difficult case, of course, is made when the City's public announcement that there will be a redevelopment in the area in fact drives landowners to curtail development, leading to an overall decline in land values during the often protracted redevelopment planning process. Often these projects linger for decades, and then result in the City's abandoning its original grandiose scheme for a much simpler one that does not involve much of the original area at all. There is no question that direct public activities have reduced land values in a very predictable way.

If the city had deliberately depressed land values to pick up the property more cheaply in condemnation, such as by downzoning or denying zoning benefits, there is some authority that supports recovery. But where the depression in values is simply the outcome of the redevelopment process, even though a predictable outcome, the Arizona court is correct that the general trend in the courts is to deny inverse condemnation recovery. To permit recovery here would saddle legitimate planning efforts with heavy costs that, it might be argued, are no more than the type of costs that citizens always bear when a city engages in planning activities.

Landowners aren't entitled to compensation every time cities do things that cause decline in their property values - recovery is limited to those situations in which landowners bear a significantly disproportionate share of the cost of public development. Sad as many of these "redevelopment area depression" cases are, courts tend to view the injuries as the inevitable (and non-compensable) cost of living in an organized society.