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City of Kenai v. Financial Factors, Ltd., et al (10/15/93), 860 P 2d 1233
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring typographical or other formal
errors to the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to permanent
publication.
THE SUPREME COURT OF THE STATE OF ALASKA
CITY OF KENAI, ALASKA, ) Supreme Court
) File No. S-4282
Appellant, )
) Superior Court Files
v. ) No. 3KN 88 850 CI
) No. 3KN 88 926 CI )
WILLIAM M. BURNETT, JILL )
BURNETT and DOUGLAS F. JONES, ) O P I N I O N
STEPHANIE MARIE JONES, STACIE )
MARIE JONES, a minor child, )
through her father and )
guardian, DOUGLAS F. JONES, )
and FINANCIAL FACTORS, LTD., )
an Alaska corporation, ) [No. 4015 - October 15, 1993]
)
Appellees. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District, Kenai,
Victor D. Carlson, Judge.
Appearances: Marc D. Bond, Delaney, Wiles,
Hayes, Reitman & Brubaker, Anchorage, for
Appellant. Victor C. Krumm, Hickey & Krumm,
Anchorage, for Appellees.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, and Compton, Justices. [Moore,
Justice, not participating.]
BURKE, Justice.
MATTHEWS, Justice, Concurring.
COMPTON, Justice, Concurring.
RABINOWITZ, Chief Justice, Dissenting in
part.
The Burnetts brought this inverse condemnation action
against the City of Kenai seeking compensation for an easement
taken to build a public golf course. The superior court granted
the Burnetts partial summary judgment, ruling that the City had
taken a legally protected property interest and was required to
pay the Burnetts just compensation. A jury later awarded the
Burnetts compensation for diminution in their property's value,
lost profits, and incidental damages. The City appeals,
challenging both the summary judgment ruling and the damage
award. We affirm in part, reverse in part, and remand the case
for further proceedings.
I
There are two parcels of land involved in this case:
the Burnett property and Candlelight Extension, a segment of road
that once provided access to the Burnett property. Helen Stetzer
was the original owner of the Burnett property. Her husband
filed a homestead application for the land with the United States
Bureau of Land Management (BLM) in 1962. Mr. Stetzer died
shortly thereafter. Mrs. Stetzer moved onto the property and
built the road now known as Candlelight Extension in 1962.1 The
BLM granted Mrs. Stetzer a patent to the land in February 1972.
The investigations done for the patent grant indicated that the
BLM was aware of Candlelight Extension at the time it granted the
patent. Mrs. Stetzer died in 1973. In 1983, Mrs.
Stetzer's heirs sold the Stetzer property to the Burnetts. The
Burnetts planned to subdivide and develop the property. Prior to
the sale, the Burnetts requested that the City grant them an
express easement along Candlelight Extension. The Kenai Planning
and Zoning Commission recommended that a public use easement be
granted. The Burnetts then purchased the property. In August
1983, the City Council adopted Kenai Municipal Code Ordinance
(KCO) 870-83 authorizing the easement, contingent upon the
approval of the "appropriate federal agencies."2
In 1985, the City Council proposed developing an
eighteen hole golf course. On June 5, 1985, the City Council
approved a plan submitted by developer Richard Morgan to build a
golf course on land adjacent to the Burnetts' property, land
which included Candlelight Extension (i.e. Lot 3). Two days
later, the City agreed to lease Morgan land to develop the first
nine holes of the course. The lease agreement gave Morgan a
right of first refusal to lease additional lots, including Lot 3.
When Morgan informed the Burnetts of the agreement, the
Burnetts immediately contacted the City regarding access to their
property. In January 1987, after being advised by the city
attorney of the complex legal issues involved, the City Council
voted unanimously to provide the Burnetts access to their
property either by preserving Candlelight Extension or by
building an alternate route.3
In light of the City's promises to provide access, the
legal status of Candlelight Extension was unclear. However, on
May 25, 1987, the City leased Lot 3 to Morgan. Morgan built the
second nine holes of the golf course destroying Candlelight
Extension and with it access to the Burnett property. On June
17, 1987, the City Council adopted a second ordinance rescinding
Ordinance 870-83.4
Because of the problems securing access to their
property, the Burnetts could not continue with their development
plans. They failed to meet their mortgage payments, and the
mortgagees foreclosed. The Burnetts then brought this inverse
condemnation action.5 In September 1989, the Burnetts moved for
partial summary judgment seeking a ruling that Kenai inversely
condemned their property interest in Candlelight Extension and
that the date of condemnation was June 7, 1985. The City opposed
the Burnetts' motion and filed its own motion for summary
judgment, arguing that the Burnetts' claim was barred by the
statute of limitations. The City also filed a Civil Rule 56(f)
motion for a six-month time extension to oppose the Burnetts'
motion for summary judgment. The trial court denied the City's
motions and granted the Burnetts' motion. The trial court ruled
that the Burnetts had an easement via Candlelight Extension which
was taken as a result of the City's first lease to Morgan on June
7, 1985.6
A trial was then scheduled to ascertain just
compensation for the taking. A few days prior to trial, the City
moved for partial summary judgment seeking a legal ruling that
the proper measure of damages was the lesser amount of 1) the
cost to restore reasonable access to the Burnett property or 2)
the diminished value of the property due to the loss of access.
With its motion, the City filed an affidavit from Philip Bryson,
an engineer, who claimed that the cost of constructing
alternative access along the Burnetts' section line easement was
$147,974. The Burnetts opposed this motion and requested that
Bryson's report on the cost of alternate road construction be
excluded from the evidence presented at trial. The trial judge
heard argument and ruled that Bryson's testimony and report was
to be stricken. However, at this time, the trial judge did not
rule on the proper measure of damages to be used at trial.
When the trial began, both sides presented expert
witnesses who appraised the Burnett property (i.e. the property
remaining with the Burnetts after Candlelight Extension was
destroyed) using a "before and after" fair market valuation
approach. Kenneth Gain, the Burnetts' valuation expert,
calculated the fair market value of the property using a
comparable sales appraisal method, a prior sales price method,
and a subdivision development method.7 He came up with a
"before" (i.e. with access) fair market value of $227,500 using
comparable sales, $224,400 using the prior sales price, and
$240,000 using the subdivision approach. Gain combined these
figures using an imprecise formula and arrived at a fair market
value of $235,000 for the property with access as of June 7,
1985.
Next, Gain calculated the fair market value of the
Burnett property without road access as well as the "cost to
cure" the land (i.e. replace the lost access road). Gain
determined that the cost of providing comparable access was
between $300,000 and $360,0008 and noted that it was not
economically feasible to build a new road because the cost was
greater than the value of the land. Therefore, Gain concluded
that a subdivision could not be feasibly built and that the
property's "highest and best use"had been reduced to that of a
"speculative recreational property." Gain noted the difficulty
of finding "comparable sales"to appraise the property without
access because the other properties he had considered all had
some means of present access or, at least, an economically
feasible way of providing access. However, using a per acre
price for the raw land, he determined that the "after taking"
value of the property, the value of recreational land with no
access, was $55,000. He testified that the diminished value of
the land resulting from the taking was $180,000 ($235,000 minus
$55,000).
Fred Ferrera, the City's valuation expert, also
performed a "with and without access"valuation of the Burnett
property using a comparable sales appraisal method and a
subdivision development method.9 Using the comparable sales
method, Ferrera estimated that the property had a fair market
value of $144,000 with access as of June 1985. Using the
subdivision approach, he testified that it had a value of
$132,000. Ferrera then testified that the "without access" fair
market value of the property on the takings date was $75,000.
The trial judge instructed the jury to compensate the
Burnetts for the "taking"of the road access easement. He
defined just compensation as "the fair market value of the
property being taken as of June 7, 1985 plus all damages that
have directly resulted." When these instructions are read in
conjunction with the special verdict form, it appears that the
trial judge intended the jury to award the Burnetts the amount
that the taking of access diminished the fair market value of the
Burnetts' remaining property. The judge asked the jury to
determine the fair market value of the Burnett property as of
June 7, 1985 with and without road access.
The trial judge also instructed the jury to determine
whether it was reasonably possible to construct an alternate
access road and, if so, to determine the cost of construction.
The instructions did not make it clear whether the Burnetts were
entitled to receive either the "fair market value"amount or the
"cost to cure"amount, the lesser of the two, or both. The trial
judge also instructed the jury that it "must include any increase
in the market value of the property caused by the proposed golf
course that occurred before June 7, 1985"but should consider no
increase due to the golf course after that date.
The jury answered the special verdict listing a "with
and without access"diminished value amount of $159,400 and a
"cost to cure"amount of $435,000. Although the special verdict
form did not indicate which amount represented the actual award,
the final judgment indicates that the court used the diminished
value figure. The jury also awarded the Burnetts $100,000 in lost
profits and $48,628 for "other damages." In addition, the trial
court awarded over $179,000 in attorney's fees to the Burnetts
and the mortgagees. This appeal followed.
II
A. Inverse Condemnation
Article 1, section 18 of the Alaska Constitution
provides that "[p]rivate property shall not be taken or damaged
for public use without just compensation." A property owner may
recover damages through an inverse condemnation action where the
State physically invades private property without instituting
formal eminent domain proceedings or otherwise employs land use
planning regulations which deprive a property owner of the
"economic advantages of ownership."Ehrlander v. State, Dep't of
Transp., 797 P.2d 629, 632-33 (Alaska 1990) (quoting Homeward
Bound, Inc. v. Anchorage School Dist., 791 P.2d 610, 614 (Alaska
1990)).
As noted above, the trial court ruled on partial
summary judgment that a compensable taking had occurred. In
reviewing an award of summary judgment, we independently
determine whether any genuine issues of material fact exist and
whether the moving party is entitled to judgment as a matter of
law. Drake v. Hosley, 713 P.2d 1203, 1205 (Alaska 1986).
1. The Ruling on Summary Judgment that the Burnetts
Owned a Property Interest in Candlelight Extension
The first question presented is whether the Burnetts
established their ownership of a property interest in Candlelight
Extension. Although the trial court ruled that the Burnetts
obtained easements over Candlelight Extension both by implication
and by necessity, it is plainly wrong to apply either legal
theory to the facts of this case.
We have focused, therefore, on the argument that the
City granted the Burnetts an express easement via Candlelight
Extension when it passed Ordinance 870-83. The ordinance
provided that
[a] sixty foot public easement be
established along Candlelight Drive Extension
through City-owned lands described as
Government Lot 3, Section 3, T5N, R11W, S.M.,
subject to permission from appropriate
federal agencies. Furthermore, the City
shall not assume responsibility for the
upgrading and maintenance of said easement
unless authorized by the Council, nor costs
of perfecting this easement.
KCO 870-83 (emphasis added). The ordinance required federal
approval of the easement pursuant to 16 U.S.C. 4601-8(f)(3)
(1982).10
In their motion for summary judgment, the Burnetts
argued that the National Park Service delegated its authority to
approve the easement to the State, and that the State approved
the easement in April 1984. The superior court apparently
accepted this claim based on the documentation offered in support
of the Burnetts' motion. The court ruled that the express
easement granted by ordinance 870-83 was a "vested" property
interest owned by the Burnetts which was "taken"by the City.
The four justices participating in today's decision are
evenly divided on whether the superior court ruled correctly,
when it granted the Burnetts' motion for summary judgment.11 The
lower court's ruling is, therefore, affirmed. Since we are
deadlocked on this issue, we decline to express our individual
reasons for affirmance or reversal in this, the opinion of the
court.12 See Taylor Const. Serv., Inc. v. URS Co., 758 P.2d 99,
103 (Alaska 1988).
2. The Superior Court Erred in Ruling that the
Taking Occurred on June 7, 1985
The trial court also ruled on summary judgment that the
taking occurred when the first lease was executed on June 7,
1985. The first lease agreement between the City and Morgan
covered Lots 1 and 2 and was entered for the purpose of building
the first nine holes of an 18-hole golf course. The lease
contained an additional provision granting Morgan a right of
first refusal to lease Lot 3 and parts of Lot 4 for the second
nine holes. The City argues that the first lease does not
constitute a taking because Morgan could not force the City to
lease Lot 3.13 It further argues that Candlelight Extension was
not directly affected by the first lease and that the Burnetts'
property rights were therefore undisturbed. We agree.
A taking does not occur until legal title to property
vests in the government, or the government takes actual or
constructive possession of the property. Stewart & Grindle, Inc.
v. State, 524 P.2d 1242, 1246 (Alaska 1974). The government
takes constructive possession either by causing damage to the
property or by depriving the owner of the full, beneficial use of
the land. Id. We have applied a four-part test to determine
whether a government agency's declared intent to condemn land at
some future date is sufficient to deprive landowners of the full,
beneficial use of their land. We consider the following
questions: (1) Is the land's marketability substantially
impaired? (2) Has the condemning authority evidenced an
unequivocal intention to take the specific parcel of land? (3)
Has the owner acquired and held the property for subsequent
development and sale? and (4) Has the owner taken active steps to
accomplish this purpose? See Ehrlander, 797 P.2d at 634; see also
Homeward Bound, 791 P.2d at 614 (holding that no taking occurred
because the Municipality's "mere designation of the property as a
school site was not a concrete indication that the Municipality
intended to condemn the property").
In this case, we find nothing in the record to show
that the Burnetts were stymied in their development plans as of
June 7, 1985. Furthermore, the City did not demonstrate an
"unequivocal intention"to take the easement when it executed the
first lease. A right of first refusal is not an option, and the
granting of such a right is insufficient proof of the City's
concrete intention to lease Lot 3. Even if we accept that the
City would inevitably lease Lot 3 to Morgan in order to complete
the golf course, the course's construction would not necessarily
entail the destruction of Candlelight Extension. Many golf
courses have roads running through them, and the City Council
actually discussed such a possibility in the present case.
For the above reasons, we conclude that trial court
erred in ruling on summary judgment that the City took
constructive possession of the property when it granted Morgan
the right of first refusal. The taking occurred when it became
clear that Candlelight Extension was slated for destruction.
There remains a question of fact as to when this occurred, but in
light of the City's January 7, 1987 resolution guaranteeing the
Burnetts' access to the land, it would be difficult to place the
date of the taking before passage of the resolution. The trial
court's partial summary judgment order establishing the date of
the taking as June 7, 1985 is reversed and the case is remanded
for further proceedings conforming to this opinion.
B. Compensation for the Taking of the Easement14
The City's principal argument is that the damage
instructions given to the jury blurred the distinction between
compensation for the property actually taken (i.e. the access
easement) and compensation for the "severance damage" to the
Burnetts' remaining property. The City also claims the court
erred in denying its requested ruling that the maximum damages
available to the Burnetts was equal to the cost of obtaining
access to the Burnett property.
1. The "Before and After"Fair Market Value Measure
of Damages
The first issue we decide is the proper measure of
damages to be applied in this case. In our view, this case
presents a "loss of access/taking of an easement" situation
rather than a "partial taking/severance"situation so the proper
statutory measure of damages is AS 09.55.310(a)(1).15 This
statute requires the jury to "value the property sought to be
condemned,"in this case the access easement. The proper way to
value an easement, as reflected in Alaska Pattern Civil Jury
Instruction 27.07, is "to compute the drop in fair market value"
of the property affected.16 In other words, the jury should
perform a "before and after"fair market valuation of the
remaining Burnett property. See State v. Doyle, 735 P.2d 733,
735 (Alaska 1987) (proper measure of damages for the taking of an
avigation easement is "the difference in the fair market value of
the property before and after the taking"); see also 0.958 Acres
v. State, 762 P.2d 96, 101 n.8 (Alaska 1988) (citing the "before
and after" method as the proper damage measure in a loss of
access case).
Although we agree with the City that the jury
instructions were not entirely clear on this issue, the special
verdict form required the jurors to value the Burnett property
with and without access on the takings date established by the
trial court. Under our case law, this was a proper method to
compensate the Burnetts for the taking of the easement itself.17
2. The "Cost to Cure"Measure of Damage
The next question is whether the replacement value or
"cost to cure" measure of damages should be given as an
alternative measure of damages for the taking and whether the
jury must be restricted to awarding the lesser of the two damage
figures.
In Alaska, the fundamental goal of "just compensation"
is to make the property owner whole. Hammer v. State, 550 P.2d
820, 826 (Alaska 1976). A fair market valuation is only one way
to accomplish this task, and other damage measures may be used
when the fair market value measure would not be adequate to make
the property owner whole. See Gackstetter v. State, 618 P.2d
564, 567 (Alaska 1980) ("fair market value is not an end in
itself, but merely a means to achieve the goal of just
compensation"); Bridges v. Alaska Housing Auth., 375 P.2d 696,
698-99 (Alaska 1962) (rejecting a fair market value measure of
damages and approving a replacement cost measure in an unusual
situation in which fair market value did not adequately
compensate an owner for the damage done to her building).
However, we have expressed a preference for a fair market
valuation over a replacement or reproduction cost valuation "in
cases where the property is of a type ordinarily bought and sold
in a ready market." Ketchikan Cold Storage Co. v. State, 491
P.2d 143, 151 n.12 (Alaska 1971).18 Thus, we see no reason why an
alternative "cost to cure"instruction need be given in the
absence of a showing by the City that "fair market value" is an
inaccurate measure of the losses suffered by the Burnetts.
It also is plainly wrong to claim, as the City does,
that the maximum damages available to the Burnetts should be
"equal to the cost of obtaining access to the subject property."
Such a limit may have been proper if there had been no
interruption in access to the Burnetts' property or if it was
clear at the time of the taking that under their duty to mitigate
damages, the Burnetts were required to construct alternate access
and continue with their development plans. If that were the
case, it could be said that reimbursement for the cost of putting
in an alternate access route was sufficient to make the Burnetts
whole.
However, at the time of the taking in this case, the
City's own engineers determined that the cost of constructing
alternate access would run between $250,000 and $340,000. At
this price, development of the subdivision was no longer
economically feasible. The loss of access brought subdivision
development to a halt and eventually led to the foreclosure of
the property. Simply requiring the City to pay the cost of
constructing an alternate access road at this late stage would
not make the Burnetts whole in any sense of the word.
3. The Impact of the Golf Course on Fair Market Value
The final issue we will address relating to damages for
the taking is the extent to which the jury may consider the value-
enhancing impact of the planned golf course in determining the
"before" fair market value of the Burnett property. The trial
judge instructed the jury that it "must include any increase in
the market value of the property caused by the proposed golf
course" that occurred before the takings date but could not
consider the impact of the golf course on fair market value after
that date. The City claims that this instruction was
erroneous. It relies on State v. Alaska Continental Dev. Corp.,
630 P.2d 977, 983 (Alaska 1980), where we stated that the
"inclusion of value enhancement attributable to the project for
which the property is being taken is generally prohibited in
determining condemnation awards." The Burnetts argue that they
are entitled to compensation for increased value resulting from
the general knowledge that a golf course was planned up to the
date the project was chosen. Although the briefing on this issue
is quite inadequate, it appears that the parties are disputing
the proper application of the "scope of the project" and
"indefinite location"rules to the facts of their case.
In Alaska Continental Dev., we approved of the so-
called "indefinite location"rule, stating that "value resulting
from the general knowledge that the project was planned was
proper to consider up to the date the route was chosen that would
take [the owner's parcel]."Id. at 984-85 (emphasis added). In
City of Valdez v. 18.99 Acres, 686 P.2d 682 (Alaska 1984), we
stated that,
the proper time to exclude project-
enhanced value from a fact-finders'
calculations is when the property is likely
to be condemned and its market value thus
reflects the owner's chance to "hold up" the
government which is planning to take it.
Until then, project-enhanced value is
compensable.
Id. at 689 (emphasis added).
The "scope of the project"rule which we have adopted
has two components. First, if the land is "probably within the
scope of the governmental project for which it is being condemned
at the time the Government became committed to the project, then
the owner is not entitled to any increment in value occasioned by
the Government's undertaking the project."City of Valdez, 686
P.2d at 689 (emphasis added) (quoting United States v. 320.0
Acres of Land, 605 F.2d 762, 781-82 (5th Cir. 1979). Second,
"whenever it becomes likely that the property will be condemned -
- whether or not the property was originally within the project's
scope -- project-enhanced value ceases to be compensable." City
of Valdez, 686 P.2d at 689.
As noted in our discussion of the takings date, the
record is clear that the City did not envision the destruction of
Candlelight Extension when "it became committed"to building a
municipal golf course. Thus, the first part of the "scope of the
project" rule does not apply, and the Burnetts are likely
entitled to some project-enhanced value as a result of the
"general knowledge"that the City planned to build a golf course
in the vicinity of their property. The factual issue to be
resolved on remand is the date that value enhancement due to the
golf course ceased to be compensable.
In City of Valdez, we adopted the California Supreme
Court's "probability" test to determine the date upon which
project-enhanced value is no longer compensable. Id. at 690 n.15
(citing Merced Irrigation Dist. v. Woolstenhulme, 483 P.2d 1, 12-
13 (Cal. 1971) (en banc)). Under the test, project-enhanced value
is excluded from just compensation when "an informed owner could
reasonably anticipate that the property might well be taken for
the project." Woolstenhulme, 483 P.2d at 13 n.10. If the
Burnetts are able to establish their ownership of the Candlelight
Extension easement on remand, the jury should be instructed to
apply the probability test to determine the date on which the
golf course project may no longer enhance the "before" fair
market value of the Burnett property.
C. Compensation for the Consequences of the Taking
In addition to the loss of the easement, other negative
consequences flowed from the elimination of the Burnetts' access
to their property. The loss of access made it unfeasible for the
Burnetts to complete their planned subdivision, and they
ultimately lost the property through foreclosure. The Burnetts
therefore also sought compensation for lost profits and other
incidental damages resulting from the taking.
1. Lost Profits
At the close of the Burnetts' case, the City moved for
a directed verdict on the issue of lost profit damages. The City
argued that the evidence showed that the Burnett's planned
subdivision was not sufficiently developed to provide assurances
of lost profits and that they had, therefore, failed to prove
this item of special damages with reasonable certainty. The
trial court denied the City's motion, ruling that there was
sufficient proof to allow reasonable jurors to differ on this
issue. The jury ultimately awarded the Burnetts $100,000 in lost
profits and $48,628 for other incidental expenses. The City now
challenges the denial of its directed verdict motion arguing that
the Burnetts are not entitled to lost profits as a matter of law.
Although courts in eminent domain proceedings have
traditionally refused to award damages for lost profits, we have
long recognized that such damage awards may be necessary to fully
indemnify the property owner for the taking. See State v.
Hammer, 550 P.2d 820, 824-27 (Alaska 1976). In Hammer, we held
that a business owner should be compensated for the temporary
loss of profits resulting from an interruption of the business
due to the state's exercise of its eminent domain powers. Id. at
827. We noted, however, that because "loss of profits is an item
of special damages, the condemnee has the burden of proving by a
preponderance of the evidence the amount of profits lost as a
direct result of the state's taking, such proof must meet the
requirement of reasonable certainty."Id. Whether lost profits
are recoverable when a subdivision or other real estate project
is aborted while still in the development stage is a question of
first impression for this court.
The certainty required for an award of lost profits for
a proposed development is illustrated in City & County of
Honolulu v. Bonded Inv. Co., 507 P.2d 1084 (Haw. 1973). In
Bonded Inv., the City of Honolulu filed condemnation proceedings
to acquire two parcels of beach front land (Lots 63 and 64). Id.
at 1087. Before the condemnation proceedings, the landowners did
considerable work to develop the property and market the
condominiums they planned to build. Id. Their work included a
feasibility study and appraisals for financial purposes, drawings
outlining the improvements to be made, satisfactory construction
financing, and arrangements for the necessary legal
documentation. Id. In addition, all the units on Lot 63 were
sold and the money placed in escrow. Id. The Hawaii Supreme
Court concluded that evidence of lost profits on Lot 63 was
properly admitted because the expected profits were based on
legally enforceable sales contracts and were, therefore,
sufficiently certain. Id. at 1088. In contrast, evidence of lost
profits for Lot 64 was properly excluded because no sales
contracts had been executed and lost profits were, therefore, too
speculative and uncertain. Id.
In this case, Jill Burnett testified that a substantial
amount of work had been performed in developing the property as a
subdivision. The work, however, consisted primarily of obtaining
preliminary approval for 19 lots in the subdivision and doing
survey and soil tests. At best, the project was in the early
stages of development. The proof establishing lost profits in
this case simply does not reach the level of certainty found in
Hammer, where there was a preexisting business with a stipulated
amount of lost profits, or Bonded Inv., where sales contracts
provided a clear measure for projected profits. Because the
Burnetts' profit projections are so highly speculative, we
conclude that the Burnetts are not entitled to compensation for
lost profits as a matter of law.
2. Incidental Damages
The Burnetts were also awarded compensation for certain
incidental expenses relating to the taking. Like lost profits,
incidental damages may be justified in takings cases so long as
they are proven with reasonable certainty. See Hammer, 550 P.2d
at 826-27. The Burnetts' request for incidental expenses
included, among other things, reimbursement for work done to
improve and develop the land, for the post-taking interest they
paid on their note, and for the property taxes they paid after
June 1985. The jury awarded incidental damages in excess of
$48,000 but did not address the claims separately. We have
evaluated the claims on an individual basis.
First, we hold that the Burnetts may be compensated for
expenditures they made in furtherance of their subdivision
development which did not actually increase the fair market value
of their land. Soil tests and land surveys would fall in this
class. The limitation on this damage measure is that, like all
claims for special damages, the Burnetts must prove these damages
by a preponderance of the evidence and with reasonable certainty.
Id. at 824-27.
However, the Burnetts should not be compensated, in the
form of a special damage award, for the other costs of improving
their land. In Ketchikan Cold Storage Co. v. State, 491 P.2d 143
(Alaska 1971), we held that a condemnee will not be penalized for
improving his property if the improvements were made in good
faith. Id. at 153. However, improvements to the land are
normally reflected in the subsequent fair market value of the
land. Kenneth Gain, the Burnetts appraiser, testified that the
value of the land rose from $170,000 in 1983 to $224,000 in 1985.
This figure was based on a 10% per year increase in market price
and a 10% increase in value due to the development work done on
the property. If the Burnetts are compensated for improvements
made on the property and for the increase in market value due to
those improvements, they will receive double compensation for the
work done. Because improvement costs are properly reflected in
market price, compensation for these costs should come in the
form of an award for diminution in the property's value as a
result of the taking.
We further hold that although the Burnetts are entitled
to interest on a "just compensation"award calculated as of the
date of the taking, they are not entitled to reimbursement for
the post-taking property taxes or interest which they paid on
their note. See Stewart & Grindle, Inc. v. State, 524 P.2d 1242,
1246-48 (Alaska 1974). As for the other incidental damages
claims, although we believe that they were not proven with
sufficient certainty to carry the Burnetts' burden of proof in
the first trial, we see no reason to prevent the Burnetts from
pressing these claims again on remand.
CONCLUSION
The trial court's order for partial summary judgment,
establishing that a compensable taking occurred, is affirmed by
an evenly divided court. We conclude, however, that the trial
court erred in ruling on summary judgment that the taking
occurred on June 7, 1985. The court also erred in denying the
City's motion for a directed verdict on the issue of lost
profits. We reverse the award of partial summary judgment with
regard to the date of the taking, and remand the case for further
proceedings consistent with this opinion. We also reverse the
just compensation award and remand for a new trial on damages
consistent with this opinion. Finally, in light of our remand,
we vacate the trial court's award of attorneys' fees.
AFFIRMED in part; REVERSED in part; and REMANDED with
instructions.
MATTHEWS, Justice, concurring.
In my view the superior court correctly ruled that the
Burnetts had a property interest in the Candlelight Extension.
Because I think that appellate opinions require reasons for the
conclusions reached,19 I write separately to briefly express my
reasons for this conclusion.
One condition of the ordinance which granted the
Burnetts an express easement in the Candlelight Extension was
that appropriate federal approval had to be received. Documents
submitted in support of the Burnetts' summary judgment motion
indicate that state officials informed the City that the National
Park Service had delegated authority to grant approval of the
easement to the State Parks Division and that the State Parks
Division did in fact approve of the easement. The City assured
the Burnetts on a number of occasions that it was satisfied that
federal approval had been obtained and never suggested that the
Burnetts should take further action to clarify whether the
federal government had granted approval. The Burnetts reasonably
and detrimentally relied on the City's representations concerning
federal approval and it would be unconscionable at this point to
allow the City to assert an inconsistent position in order to
avoid compensating the Burnetts for their losses.
If this case involved the forced imposition of an ease
ment on property subject to a federal dedication for outdoor
recreational use, it would be appropriate to require direct
evidence of federal approval. However, only damages are being
sought in this case and only from the City of Kenai. No federal
interest is involved. Therefore, it seems appropriate to hold
the City to its pre-taking representations to the Burnetts that
the condition regarding federal approval was satisfied.
The City also claims that even if the federal
government approved the easement, the Burnetts failed to perfect
their easement because they never obtained a conveyance document
executed by the City Manager as required by the municipal code.
In my view this argument lacks merit.
The City Council consistently recognized the Burnetts'
right of access to their property and disregarded any conditions
precedent that arguably might have been present in the 1983
ordinance.20 The Burnetts reasonably and detrimentally relied on
the City's representations. It would be unconscionable therefore
to allow the City to now assert an inconsistent position to avoid
compensating the Burnetts for their losses. Sea Lion Corp. v.
Air Logistics of Alaska, 787 P.2d 109, 114 n.2 (Alaska 1990) (the
doctrine of quasi-estoppel "precludes a party from taking a
position inconsistent with one taken previously when
circumstances render the assertion of the second position
unconscionable").
COMPTON, Justice, concurring.
I am unpersuaded that the superior court erred in
granting summary judgment to the Burnetts. Thus, in my view,
this court's affirmance of the superior court's decision is
correct. While I concur in the affirmance, the reason for this
result is that we are evenly divided in opinion on the merits of
the issues presented to us.
It is a "sound, reasonable and necessary"rule that an
affirmance by an evenly divided court is not precedent. Taylor
Constr. Servs., Inc., v. URS Co., 758 P.2d 99, 103 (Alaska 1988)
(Compton, J., dissenting). Stating personal opinions for
affirmance or reversal of the superior court's judgment is at
best advisory, at worst confusing and misleading. Individual
justices' opinions are simply immaterial. As Chief Justice
Marshall wrote in Etting v. Bank of United States, 11 Wheat. 59,
6 L.Ed. 419, 423 (1798):
In the very elaborate arguments which
have been made at the bar, several cases have
been cited which have been attentively
considered. No attempt will be made to
analyze them, or to decide on their
application to the case before us, because
the judges are divided respecting it.
Consequently the principles of law which have
been argued cannot be settled; but the
judgment is affirmed, the court being divided
in opinion upon it.
Therefore, I decline to accept the invitation to express my
personal analysis and opinion on the merits of the underlying
controversy.
RABINOWITZ, Chief Justice, dissenting in part.
I dissent from this court's affirmance of the superior
court's ruling on summary judgment that the Burnetts owned a
property interest in Candlelight Extension.
The Burnetts took the position in their summary
judgment motion that the National Park Service delegated its
authority to approve the easement to the State, and that the
State approved the easement in April 1984. They further
maintained that no other conditions were imposed by the express
language of the ordinance, and that they therefore obtained a
vested property interest in the road as soon as the State related
its approval. At one time, the City more or less shared the
Burnetts' view that the State possessed authority to approve the
easement, and had approved the easement. The City now argues
that the Burnetts never obtained federal approval, and that the
easement never came into existence.
The documents submitted in support of the Burnetts'
summary judgment motion indicate that City officials attempted to
obtain federal approval for the easement through the Alaska
Department of Natural Resources, Division of Parks. The
documents also indicate that State officials informed the City
that federal authority to grant approval had been delegated to
the State Parks Division and that the Division granted approval.
However, I find nothing in the record to conclusively establish
either that the federal government granted approval or that it
had actually delegated its authority to grant approval to the
State.
Mere assertions of authority are insufficient to
prevail on a motion for partial summary judgment. See generally
Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1280 (Alaska
1985) (when reviewing a grant of summary judgment, this court
draws all reasonable inferences of fact in favor of the non-
moving party and against the moving party). At a minimum, I
would require a Department of the Interior document approving the
easement or delegating to the State authority to approve the
easement. Without such a document in the record, I conclude that
a material issue of fact exists as to whether the ordinance
effectively granted the Burnetts an easement over Candlelight
Extension. I would therefore reverse the grant of partial
summary judgment and remand the case for further proceedings.
See Foster v. Hanni, 841 P.2d 164, 170 (Alaska 1992) (we will
reverse an order granting summary judgment "if the pleadings and
evidence presented reveal either the existence of any genuine
issues of material fact or that the moving party is not entitled
to judgment as a matter of law").
If, upon remand, the Burnetts were to establish that
the federal government either approved the easement or delegated
the State authority to approve the easement, I would hold that
the City is estopped as a matter of law from denying the validity
of the easement.
_______________________________
1. Candlelight Extension crosses a parcel of land
originally owned by the federal government known as "Lot 3." In
1965, the federal government patented Lot 3 to the State. In
1966, the State patented it to the City of Kenai. Initially, Lot
3 was vacant land not dedicated for a particular use. However,
in 1980, the City rededicated Lot 3 for recreational use only in
order to resolve a dispute with the federal government. Under
the agreement, the dedication could not be changed without the
permission of the United States Secretary of the Interior.
2. The parties dispute whether this approval was ever
competently granted. The City argues on appeal that Ordinance
870-83 was an "inchoate grant" which "failed because the
conditions precedent to the grant were never fulfilled." Brief
of Appellant at 26. See infra Discussion Section IIA.
3. Kenai's Public Works Director and the City Engineer
later estimated that the cost of constructing an alternate route
would be between $250,000 and $340,000, making this option
impractical.
4. The second ordinance essentially states that because the
Burnetts had never "perfected"their easement, the easement never
came into existence.
5. The Joneses and Financial Factors, Ltd. also brought
claims as mortgagees. All the claims were consolidated in April
1989.
6. Specifically, the court ruled that no material issues of
fact existed and that 1) Stetzer had a "vested easement implied
by quasi-easement"to use Candlelight Extension as access to her
homestead (i.e. an implied easement); 2) the Burnetts had an
easement by necessity; and 3) the Burnetts had an express
easement pursuant to Ordinance 870-83.
7. The "comparable sales"and "prior sale price"valuations
are variations of the "market data"valuation method. See Dash
v. State, 491 P.2d 1069 (Alaska 1971). Under the prior sales
price approach, Gain explicitly relied on the "common knowledge"
that the City planned to construct a golf course in the vicinity
of the Burnetts' property to elevate the market value of the
property. It also appears that Gain included the increase in
value which comes from property being located near a golf course
under all three approaches. This is made clear from the fact
that many of the "comparable properties" Gain used in his
appraisal were located on or near a golf course.
8. In arriving at this figure, it appears that Gain relied
almost exclusively on the reports of the City Engineer and the
Director of Public Works that the cost of constructing
alternative access would run between $250,000-$340,000.
9. The City wanted Ferrera to testify that the subdivision
development appraisal showed that the development costs
outweighed projected profits on the proposed development.
However, the trial judge excluded that testimony because he found
that it was based on data that was not reasonably relied upon by
experts in the field.
10. Prior to 1986, 16 U.S.C. 4601-8(f)(3) provided that
(3) No property acquired or developed
with assistance under this section shall,
without the approval of the Secretary, be
converted to other than public outdoor
recreation uses. The Secretary shall approve
such conversion only if he finds it to be in
accord with the then existing comprehensive
statewide outdoor recreation plan and only
upon such conditions as he deems necessary to
assure the substitution of other recreation
properties of at least equal fair market
value and of reasonably equivalent usefulness
and location.
11. Justices Matthews and Compton would affirm the trial
court's grant of summary judgment as proper; Justice Rabinowitz
and the author of this opinion, writing for the court, would
reverse the lower court's ruling as erroneous. This particular
issue of law, therefore, remains undecided; the ruling below is
affirmed, however, because "that which has been done [by the
lower court] must stand unless reversed by the affirmative action
of a majority." Hertz v. Woodman, 218 U.S. 205, 212 (1910).
12. The author of this opinion elects not to express his
individual views here or in a separate opinion. Like Justice
Compton, who concurs separately, the author believes his
individual views on the merits of this issue are immaterial,
since those views relate to a matter which remains undecided in
this appeal. See Etting v. Bank of United States, 11 Wheat 59, 6
L.Ed. 419 (1798).
13. The City also argues that if the taking occurred on
June 7, 1985, the Burnetts' claim should be barred as untimely.
We find no merit in the City's argument, principally because it
ignores our prior case law. In City of Anchorage v. Nesbett, 530
P.2d 1324, 1336 (Alaska 1975), we rejected an argument that
inverse condemnation actions may be time barred either through
laches or a limitations period shorter than the statutory period
provided for adverse possession. We reaffirm our holding in
Nesbett that such actions are subject to the limitations periods
established for adverse possession or ejectment, whichever
applies. Under AS 09.10.030, the limitations period for
ejectment is ten years. Under AS 09.25.050, a seven year period
applies when the adverse possessor acquires possession "under
color and claim of title." The taking in this case occurred no
earlier than 1985. The Burnetts filed their inverse condemnation
action in October 1988. Thus, under either of these statutes, the
Burnetts' claim was not time barred.
14. Because the jury's "just compensation"award was based
on an erroneous takings date, the award cannot stand. However,
we have decided to address the important damages issues raised by
the parties in order to provide guidance to the trial court on
remand.
15. We recognize that AS 09.55.310(a) concerns the
calculation of damages in a formal eminent domain proceeding
whereas this case is an inverse condemnation action. However, we
have long recognized that where a taking has occurred and the
issue is the awarding of just compensation, "such compensation
may be determined [in an inverse condemnation action] utilizing
so far as is practicable the statutory requirements and
procedural steps"set out for eminent domain proceedings. State,
Dep't of Highways v. Crosby, 410 P.2d 724, 728 (Alaska 1966); see
also, Williams v. City of Valdez, 603 P.2d 483, 494 (Alaska
1979).
16. In this case the City destroyed the Burnetts' easement,
whereas, in the typical situation and the one the pattern jury
instruction contemplates, the converse occurs and the condemning
authority imposes an easement on the property owner's land. See,
e.g., Wickwire v. City & Borough of Juneau, 557 P.2d 783 (Alaska
1978). However, whether an easement is imposed or destroyed is
not significant in determining the value of the easement. In the
first case, the servient estate is burdened which results in a
diminution in the estate's fair market value. In the second
case, the dominant estate loses its benefit which also results in
a diminution in the estate's fair market value.
17. The City also argues that trial court erred in giving
Jury Instruction 16 which stated that "Article I, Section 18 of
the Alaska Constitution is to be liberally construed in favor of
the property owner." The sufficiency of "jury instructions is a
question of law upon which we will exercise our independent
judgment." Fairbanks North Star Borough v. Kandik Constr., Inc.,
795 P.2d 793, 797 (Alaska 1990). We agree with the City that,
although this instruction is a correct statement of the law, it
is an improper jury instruction. As the City points out, the
instruction may induce a jury to be liberal in their award of
damages.
18. See generally Roland F. Chase, Annotation, Measure of
Damages for Limitation of Access Caused by Conversion of
Conventional Road into Limited-Access Highway, 42 A.L.R. 3d 148,
156 (1972) ("in unusual situations, where it is not possible to
ascertain the loss in market value due to the cutting off of
access rights . . ., damages may be measured by the cost of
constructing substitute means of access").
19. See Paul D. Carrington, et al., Justice on Appeal 31-43
(1976) (the integrity of the appellate process requires that
appellate courts state the reasons for their decisions).
20. Of particular consequence is the fact that the City
Council voted unanimously to guarantee the Burnetts a right of
access to their property either by preserving the Candlelight
Extension or by constructing an alternate route. The council
took this action after being fully apprised by its attorney of
the legal complexities of the case.
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