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Potomac Development Corp., et al v. District of Columbia

September 15, 2011

POTOMAC DEVELOPMENT CORP., ET AL., APPELLANTS,
v.
DISTRICT OF COLUMBIA, ET AL., APPELLEES.



Appeal from the Superior Court of the District of Columbia (CAR 8076-09) (Hon. Joan Zeldon, Motion Judge)

The opinion of the court was delivered by: Epstein, Associate Judge, Superior Court of the District of Columbia:

Argued April 12, 2011

Before GLICKMAN and BLACKBURNE-RIGSBY,Associate Judges, and EPSTEIN, Associate Judge, Superior Court of the District of Columbia*fn1

The principal issues in this case involve a claim that the District of Columbia effectively took private property even though the owner kept the legal right to use or sell it. A government may accomplish a de facto taking if it announces its intent to take property through an eminent domain proceeding, but then engages in extraordinary delay that leaves the property owner in limbo and results in severe economic harm. In their complaint, however, appellants do not allege facts from which such a de facto taking can plausibly be inferred. We affirm the judgment dismissing the complaint for failure to state a claim upon which relief can be granted.

I. BACKGROUND

On October 29, 2009, Potomac Development Corporation, South Capitol Associates, and 1625 South Capitol Street S.W., LLC (collectively "appellants") filed an action against defendants District of Columbia and Gabe Klein, in his then-capacity as Director of the District Department of Transportation ("DDOT") (collectively the "District"). The complaint alleges the following facts.

Since the 1970s, appellants have owned and managed two pieces of real estate in the 1500 and 1600 blocks of South Capitol Street, S.W. The properties are within two blocks of Nationals Park, and the ballpark and other neighborhood development significantly increased the value of these properties, which are now occupied by industrial warehouses.

On June 21, 2005, DDOT informed appellants by letter that the District had decided to replace the Frederick Douglass Memorial Bridge (also known as the South Capitol Street Bridge) over the Anacostia River and that both of appellants' properties would be needed for approaches to the new bridge. The District intended to acquire these two properties and a few others as part of an "Advance Acquisition" program. On July 6, 2005, DDOT informed appellants to expect a formal notice of taking in January 2006 and completion of the taking by March 2006. In August 2005, DDOT confirmed that it would definitely take the two properties.

DDOT's timing predictions turned out to be incorrect. In May 2006, DDOT informed appellants that it expected to receive approval to move forward with the acquisition process during the summer of 2006 and that the process would take approximately six months to complete. In August 2006, DDOT informed appellants that its plans to acquire one of the two properties were still on track and that it would send notices to property owners in the fall. However, after inquiries from appellants, DDOT notified them in October 2006 that the acquisition had been delayed, that DDOT expected approval by January 2007, and that it would proceed with the acquisition process at that time. DDOT did not respond to appellants' inquiries in January 2007 seeking further information.

After appellants followed up with the Mayor in February 2007, the Mayor responded in May 2007 that the acquisition schedule had been delayed until DDOT receives approval to acquire the properties. After further inquiries, DDOT sent a letter in August 2007 stating that it did not anticipate obtaining approval for property acquisition in time to complete the acquisition in 2007. Appellants' inquiries in early 2008 went unanswered.

In the summer of 2008, the District hired an appraiser, Ryland Mitchell, to provide appraisals of the properties. The District previously engaged Mr. Mitchell to perform appraisals of properties that the District took for construction of Nationals Park. In August 2008, Paul Schray, the consultant that the District put in charge of acquiring rights for the bridge replacement project, informed appellants that he would make the offers that are a predicate to commencing formal condemnation proceedings, and that he expected to make these offers in or about December 2008, after Mr. Mitchell completed his appraisals. In December 2008, Mr. Schray informed appellants that Mr. Mitchell had not completed the appraisals and that Mr. Schray anticipated making offers sometime in the first quarter of 2009.

In February 2009, Mr. Schray informed appellants that the District once again confirmed that it would proceed with taking the two properties, that Mr. Mitchell would make site visits in late February, and that Mr. Schray expected to present offers to purchase the properties in late March or early April 2009. Mr. Mitchell did not make the site visit until late March 2009, and he informed appellants that the District might take only a portion of the properties.

In or about June 2009, the District dismissed Mr. Mitchell as the appraiser for the properties because Mr. Mitchell was on the verge of issuing written appraisals at higher values than the District wanted to pay. As a result, the District delayed the process once again while it sought another appraiser, whom it engaged a few weeks later in the beginning of July 2009. Although Mr. Schray told appellants to expect the new appraiser to contact them in the near future, the new appraiser did not. In early August 2009, Mr. Schray informed appellants that the new appraiser had not completed his appraisal of another property that he was supposed to have finished in the preceding month.

In October 2009, appellants filed their lawsuit. Appellants allege that because of the threat of imminent condemnation, they could not develop or profitably use the properties or sell them to other developers. As a result, appellants "have been in a long-term holding pattern with short-term leases." One property had two tenants under leases that permitted termination on three months' notice, and the other property is vacant and unleased. Before 2005, appellants had been able to lease "the properties as necessary to generate sufficient income to pay taxes to the District, maintain the properties, and (when feasible) generate net income, awaiting a time when the properties might become more valuable."

Appellants allege that based on comparable sales, properties in the area were worth $56 per buildable square foot in mid-2005, $65 per buildable square foot in early 2006, $100 per buildable square foot in late 2006, and $95 and $117 per buildable square foot in mid-2008. Appellants seek damages of at least $34 million based on the number of buildable square feet of the two properties and a fair market value of not less than $100 per buildable square foot.

On March 17, 2010, Judge Joan Zeldon granted the District's motion to dismiss without prejudice because appellants had not lost all economically beneficial uses of their property and they did not make "factual allegations that would support a conclusion that the delay of less than five years was unwarranted, excessive or extraordinary." On April 19, 2010, Judge Zeldon denied appellants' motion for reconsideration. On May 19, 2010, appellants filed a timely notice of appeal.*fn2

II. ANALYSIS

Appellants pled three causes of action for damages under 42 U.S.C. § 1983: (1) just compensation for a taking of the properties for a public purpose under the Just Compensation Clause of the Fifth Amendment of the United States Constitution; (2) inverse condemnation; and (3) violation of the Due Process Clause of the Fifth Amendment. We address each cause of action.

A. The taking claim

Appellants allege that the District in effect took their properties by announcing that it would imminently condemn the properties, but then delayed the initiation of eminent domain proceedings, leaving appellants unable to develop, sell, or profitably lease their properties. For ease of reference, we call this a "delay-based" taking claim. Appellants contend that the District's alleged actions constitute a de facto or "regulatory" taking under the standards announced in Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978).

The District makes two principal arguments: (1) announcement of an intent imminently to take properties, followed by a substantial delay, cannot result in a taking because the owner remains free to use, lease, develop, or sell the properties in the meantime; and (2) even if we reject this argument, appellants still do not state a claim under the Penn Central test. We consider each set of issues in turn.

1. The elements of delay-based taking claims

The District argues that the absence of any formal restriction on appellants' property rights precludes any finding of a taking. Analysis of the elements of a delay-based taking claim under Penn Central demonstrates the fallacy of this argument.

For a determination of whether a regulatory taking has occurred, Penn Central requires "essentially ad hoc, factual inquiries" into "the particular circumstances in that case." Penn Central, 438 U.S. at 124. These factual inquiries involve two general factors: (1) the "character of the governmental action;" and (2) "the economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations." Id.

As this case illustrates, the Penn Central factors may be interrelated. Here, the principal issue relating to the character of the governmental action is whether the District engaged in extraordinary delay after it announced an intent promptly to take appellants' properties, and the principal issue relating to the economic impact of the District's actions involves the extent to which the alleged delay affected appellants' ability to use or sell the properties or to benefit from appreciation in their value. Not only is delay relevant in assessing the character of the governmental action under Penn Central, but delay may also implicate the other prong of the Penn Central analysis by exacerbating the economic impact on the property owner. On the other hand, ...


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