By Timothy Lyons*
The Fifth Amendment prohibits the taking of private property “without just compensation,” but the optimal method of determining the precise amount of money that will justly compensate the property owner is not always clear. The general rule has been to set compensation at the fair market value of the property at the time the government takes it, with certain exceptions. In this Contribution, Timothy Lyons (’21) argues that when the government makes a well-publicized pre-condemnation announcement, it may be appropriate to compensate the owner based on the property’s value at the time of the announcement rather than its value at the time of the taking.
Eminent domain, the means by which government wields the power to seize title to land without the consent of the landowner, ranks among the most powerful instruments in government’s arsenal. In a democratic society where the scope of state power is limited, the perennial threat that eminent domain poses to property rights demands procedural safeguards sufficient to justify its existence. Among the most important of these protections is the right to just compensation for the taking of one’s property. Scholars have advanced numerous ways in which this protection is fundamental in cabining the exercise of eminent domain and alleviating its potentially devastating effects. By forcing the government to internalize the costs imposed upon property owners, the just compensation requirement ensures that the government only effectuates takings whose benefits to the public at large exceed those costs.2 The requirement also prevents property owners who lack an effective voice in the political process from bearing an unfair proportion of the total costs of government takings, even those that benefit society as a whole,3 and it ensures that owners whose property is taken receive recompense for the “demoralization” they may experience as a result.4
The requirement to pay just compensation is imposed on the federal government by the Fifth Amendment, which provides that “[n]o person shall . . . be deprived of life, liberty, or property, without due process of law, nor shall private property be taken for public use, without just compensation.”5 For a property owner to receive just compensation, they must “be put in the same position monetarily as [they] would have occupied if [their] property had not been taken.”6 The U.S. Supreme Court has held that the requirement “means in most cases the fair market value of the property on the date it is appropriated,” but has cautioned that “other measures” should be employed “when market value is too difficult to find, or when its application would result in manifest injustice to owner or public.”7 Ultimately, the Court has advised that “[t]he constitutional requirement of just compensation derives as much content from the basic equitable principles of fairness . . . as it does from technical concepts of property law.”8
This leads to the question of when exactly the “basic equitable principles of fairness” render the bright-line rule of “fair market value at the time of the taking” inappropriate. One such instance may be when the government’s acquisition of title through a taking is preceded by government action that lowers the property’s value. This can happen, inter alia, when the government announces its plans to condemn a specific plot of land before actually taking it. The announcement, by setting a finite horizon for any conceivable private use of the property, limits potential enjoyment of and investment in that property and reduces the value it can fetch on the open market.9 Even when fair market value at the time of the taking is estimated by evaluating the market value of similarly situated properties, rather than the market value of the condemned property itself, pre-condemnation announcements can substantially affect the condemned property to the point of actually changing which other properties are “similarly situated” to that property, to the landowner’s detriment.10
Through various just compensation cases, the Court has established the “scope-of-the-project rule,” which states in essence that when the government makes a pre-condemnation announcement as part of a government project, the gains from any increases in the property’s value attributable to the announcement should generally run to the government, not to the property owner.11 This Contribution will argue that the logical and equitable extension of this rule is its converse: when a pre-condemnation announcement depreciates the value of the property to be condemned, the valuation of the property for the purposes of just compensation should generally be the property’s fair market value at the time of the announcement.
The scope-of-the-project rule that now governs just compensation in the context of government projects comes from United States v. Miller,12 a case involving several landowners in an eminent domain action seeking as just compensation the fair market value of their properties on the date the government filed its complaint in condemnation.13 The government was planning to reroute a railroad, and one of the potential replacement routes ran through the landowners’ properties; the landowners sought to gain compensation for the appreciation in land value that had taken place throughout the area following the government’s announcement. The Court ruled for the government, stating that in calculating just compensation, a court should “disregard increment of value due to the initiation of the project and arising after” the moment that the government “was definitely committed to the project.”14 In this case, since the project’s “final and definite authorization” occurred in August 1937, the landowners “were entitled to no increase in value arising after August 1937 because of the likelihood of the taking of their property.”15
Miller established a broad set of guidelines for determining when the “scope-of-the-project rule” applies to a unit of land that the government takes as a part of a public “project.” The Court explained that the central question is whether the land was “probably within the scope of the project from the time the Government was committed to it.”16 If the lands were originally adjacent to the project but only brought within its scope by an expansion or modification of the project’s scope, then the owners are entitled to be compensated for the increase in their lands’ value. In contrast, if the lands have been within the project’s scope since its inception, then the government “ought not to pay any increase in value arising from the known fact that the lands probably would be condemned.”17 Basing its rule in both public policy and fundamental fairness, the Court reasoned that “the owners ought not to gain by speculating on probable increase in value due to the Government’s activities.”18
In a later case, United States v. Virginia Electric & Power Co.,19 the Court made clear that its holding in Miller also applied to situations where prior government action had decreased, rather than increased, the value of the property taken. The Court stated that, in deciding the issue of just compensation, a court “must exclude any depreciation in value caused by the prospective taking once the Government ‘was committed’ to the project,” and emphasized that “it would be manifestly unjust to permit a public authority to depreciate property values by a threat of the construction of a government project and then to take advantage of this depression in the price which it must pay for the property when eventually condemned.”20
The logical extension of Miller and Virginia Electric & Power Co. is that depreciation caused by a well-publicized governmental pre-condemnation announcement can trigger the scope-of-the-project rule. Government action incident to and prior to a condemnation, including a pre-condemnation announcement, has the possibility to either increase or decrease the fair market value of the property to be condemned. Since under the current scope-of-the-project rule, any increase in the value of property within and attributable to the project cannot be included in the determination of just compensation for the property, it would be inequitable for owners to also have to bear the burden of any decrease in value likewise attributable to government action.
Both federal courts and state courts have applied the Supreme Court’s broad guidance from Miller and Virginia Electric & Power Co. by holding that well-publicized pre-condemnation announcements by the government are capable of triggering the scope-of-the-project rule,21 and several courts have found specific announcements to have actually done so. For example, the Florida Supreme Court held that the state’s announcement of its plan to construct a highway, combined with the state’s disclosure of specific lands that would need to be taken for the project, triggered the scope-of-the-project rule, even though the state waited until the following year to file suits for condemnation of those lands.22 Basing its decision off of the Florida Constitution, the Court held that, for the purposes of evaluating just compensation, the effect of the “threat of condemnation” should be excluded, and the land should be valued “as it would be if it had been put and were being put to its highest and best use.”23 Numerous other state supreme courts have interpreted their respective states’ requirements for just compensation analogously, often drawing upon Supreme Court precedent to inform their analysis.24
Federal district courts have followed a similar route, some using the language of “condemnation blight” or “project influence” to refer to the depreciative effect of government action on property value in such contexts.25 One district court, applying the doctrine of “condemnation blight,” recognized that “‘fair’ market value cannot be assessed as of the date of the taking if project planning and publicity artificially depressed demand prior to the transfer of title,” and noted that the government in that case had even admitted that its “pre-condemnation announcement” was “an integral and legally necessary part of its eminent domain procedure.”26 Another district court synthesized the various scope-of-the-project rules across several federal circuits to hold that in order for a “project,” for the purpose of the rule, to be established, “(1) there must be a public purpose requiring the acquisition of land; (2) the particular lands required for the public purpose must be identified; and (3) such imminent acquisition must be evident to the public.”27
The principle motivating these decisions is clear: when the government actively diminishes the value of land incident to a taking and then takes it at a lower price, the landowner should be entitled to fair compensation for their loss. Obviously, just compensation for the taking of a parcel of land is not defined by the actual market value of that land at the time of the taking; if so, the value would always be zero, since any private buyer would have to surrender the property to the government at the moment of acquisition. Yet even a valuation method that uses similarly situated properties as a proxy for the property’s fair market value may fail to account for the full effects of the government’s pre-condemnation actions. The fair market value of any parcel of land is rarely static, and the “highest and best use” of that parcel depends on a multitude of factors, many within the government’s control in the context of the surrounding project.28 Thus, if compensation for takings is unchanged by a pre-condemnation announcement, landowners who face the probable condemnation of their property at some point in the future must choose between abandoning their property, thereby allowing its market value to decrease, or continuing to maintain or improve the property for continued productive use, thereby expending significant capital or labor to be halted at a potentially uncertain date.29 With regard to commercial or industrial property, the cloud of future condemnation hanging over the property can easily lead to a dearth of revenue and funding sources, as investors, employees, and other stakeholders decide to transfer their business elsewhere given both short-term uncertainty and the long-term certainty that the property will eventually be unavailable for private use altogether.30
While the problem could theoretically be remedied through a complex apportionment process in which changes in land value attributable to government pre-condemnation announcements would be separated from those not so attributable, a solution that would provide for greater clarity for all parties involved and involve fewer administrative costs would be simply to determine the property’s fair market value on the date of the announcement. Including evidence from after the beginning of the project would mean deviating from the temporal foundation of the determination of just compensation and breaking from the scope-of-the-project rule as normally applied. As discussed, just compensation “means in most cases fair market value of the property on the date it is appropriated.”31 Part of the rationale for setting a specific date is the “need for a clear, easily administrable rule governing the measure of ‘just compensation.’”32 Likewise, the scope-of-the-project rule itself envisions a date on which the project begins, as the reasoning of Miller and its progeny illustrates.33 Requiring either a panel of judges or a fact-finding commission34 to tease out which post-announcement events were independent of government action and discern to what extent they affected the property’s value would be an aberration from the normal course of determining a specific date on which the property should be valued for just compensation. Moreover, a factfinding commission, generally assigned only to determine the market value of a property on a specific date based on similarly situated properties,35 cannot be expected to have either the resources or the technical skills to sensibly apportion causation across these factors and attribute to each factor a monetary value. The ostensibly simple task of selecting a date at which to fix the condemned property’s fair market value presents sufficient conceptual difficulty to caution against adding additional complexities to the valuation process.36
However, a rule requiring the government to compensate landowners for decreases in property value caused by governmental pre-condemnation announcements need not be absolute; like any other equitable rule, it could allow for exceptions in cases where its rationales lose force.37 If an incident occurred following the government’s pre-condemnation announcement that affected the property’s value and that was clearly distinguishable and exogenous from the government’s actions, an assessment of the effects of that event on the property’s fair market value might be warranted, since the event would clearly not be part of the “project” as defined by the scope-of-the-project rule.38 It would be unfair to the government (and ultimately, the taxpaying public) to require property owners to be compensated for pre-existing value that would have been similarly extinguished absent any government action.39
Although “fair market value of the property at the time of the taking” is the “basic measure of compensation,” the Court has “hedged” that measure “with certain refinements . . . in the interest of effectuating the constitutional guarantee” that compensation will be “just.”40 One such refinement is the “scope-of-the-project” rule: when property is condemned pursuant to a “public project,” valuation of that property for the purposes of compensation must exclude the effects of the project itself, since “to permit compensation to be either reduced or increased because of an alteration in market value attributable to the project itself would not lead to the ‘just compensation’ that the Constitution requires.”41 As the Court has noted, the rule exists because “the ‘market value’ of property condemned can be affected, adversely or favorably, by the imminence of the very public project that makes the condemnation necessary.”42 Thus, the scope-of-the-project rule, depending on the context, may work to the advantage of either the property owner or the government. “The public may not by any means confiscate the benefits, or be required to bear the burden, of the owner’s bargain”; the owner “must be made whole but is not entitled to more.”43
The scope-of-the-project rule may be valuable in protecting the value of public projects from capture by speculators, but it need not be limited to this role. Extending the rule to protect landowners from property-value depreciation resulting from government announcements of future takings would simply be an endorsement of an equitable principle that lower courts have already recognized as following logically from the Supreme Court’s contemporary takings jurisprudence. To do otherwise, by letting government actively depress the value of private land and then claim it at the lower price, would be to allow government to “confiscate the benefits” of a landowner’s investment in their property and exploit its own actions at their expense.
* Timothy Lyons is a J.D. Candidate (2021) at New York University School of Law. This piece is a commentary on the 2020 problem at the Evans Moot Court Competition in Madison, Wisconsin, hosted by the University of Wisconsin School of Law. The issue in the problem dealt with the question of whether, for the purposes of just compensation, condemned property should be valued before the date of a well-publicized governmental pre-condemnation announcement pursuant to a government project. The views expressed in this article do not necessarily represent the views of the author on this point of law. Rather, this article is a distillation of one side of the arguments made by the team at the Evans Moot Court Competition.
2. See, e.g., Jack L. Knetsch & Thomas E. Borcherding, Expropriation of Private Property and the Basis for Compensation, 29 U. Toronto L.J. 237, 242–44 (1979).
3. See, e.g., Saul Levmore, Takings, Torts, and Special Interests, 77 Va. L. Rev. 1333, 1344–45 (1991); Andrea L. Peterson, The Takings Clause: In Search of Underlying Principles Part I – A Critique of Current Takings Clause Doctrine, 77 Cal. L. Rev. 1299, 1357–58 (1989).
4. See Frank I. Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of “Just Compensation” Law, 80 Harv. L. Rev. 1165, 1214–16 (1967).
5. U.S. Const. amend. V. The Fourteenth Amendment applies this requirement to state governments. U.S. Const. amend. XIV (“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law . . . .”).
6. United States v. Reynolds, 397 U.S. 14, 16 (1970) (interpreting what constitutes “just compensation” under the Fifth Amendment).
7. Kirby Forest Indus. v. United States, 467 U.S. 1, 10 n.14 (1984) (quoting United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950)).
8. United States v. Fuller, 409 U.S. 488, 490 (1973) (citing United States v. Commodities Trading Corp., 339 U.S. 121, 124 (1950)).
9. See generally 8A Nichols on Eminent Domain § G18.01 (Matthew Bender, 3d ed. 2020) (providing an overview on the topic of condemnation blight).
10. See Gideon Kanner, Condemnation Blight: Just How Just is Just Compensation?, 48 Notre Dame L. Rev. 765, 775 (1973) (criticizing comparative sales method because of courts’ tendency to “doggedly insist that the parties produce ‘comparables’ exactly like the property being taken, with scant regard for the realities of the market, which may make it impossible or, where possible, not very reliable”).
11. See, e.g., Shoemaker v. United States, 147 U.S. 282, 304–05 (1893); United States v. Miller, 317 U.S. 369, 376–77 (1943).
12. See Miller, 317 U.S. at 372. Prior cases had hinted at such a rule. See, e.g., Shoemaker, 147 U.S. at 304–05; Kerr v. South Park Comm’rs, 117 U.S. 379, 387 (1886).
13. See Miller, 317 U.S. at 372.
14. Id. at 372–73.
15. Id. at 377.
16. Id. (emphasis added).
19. 365 U.S. 624 (1961).
20. Id. at 636 (internal quotations omitted) (emphasis added).
21. Some courts have focused especially on the temporal aspect of the scope-of-the-project analysis. In United States v. 320.0 Acres of Land, 605 F.2d 762 (5th Cir. 1979), for instance, the Fifth Circuit held that when a court considers valuation for just compensation, “the appropriate date is largely a function of reasonable expectations,” namely “the date as of which the landowners or prospective purchasers no longer could reasonably anticipate being able to devote these properties to their highest and best use in the context of the surrounding governmental project, without serious apprehension that the properties would soon be condemned.” Id. at 807. Other courts have extended this rule to apply specifically to governmental announcements that identify a specific property as a target for condemnation. See, e.g., Baylin v. State Roads Comm’n, 475 A.2d 1155, 1161 (Md. 1984) (citing 320.0 Acres of Land and remarking that “in some instances the commitment date may be the date the government announced the project”).
22. State Road Dep’t v. Chicone, 158 So. 2d 753, 758 (Fla. 1963).
23. Id. See also Dade Cty. v. Still, 377 So. 2d 689, 690 (Fla. 1979) (holding that condemning authority cannot benefit from depression in property value “caused by a prior announcement that it will be taken for a public project,” and “[c]ompensation under those circumstances must be based on the value that the property would have had at the time of the taking had it not been subjected to the depreciating threat of condemnation”).
24. See, e.g., Lipinski v. Lynn Redev. Auth., 246 N.E.2d 429, 432 (Mass. 1969) (holding landowner entitled to damages “equal to the property’s value, unaffected by any knowledge of an impending taking”); Mich. DOT v. Haggerty Corridor Partners Ltd. P’ship, 700 N.W.2d 380, 384–85 (Mich. 2005) (affirming lower court’s judgment that condemned property’s value “should have been determined without regard to any enhancement or reduction of the value attributable to condemnation or the threat of condemnation”); Twp. of. W. Windsor v. Nierenberg, 695 A.2d 1344, 1345–46 (1997) (setting valuation date when municipality wrote letter to potential condemnee, stating that municipality might acquire property owner’s land for use as community park); see also Nierenberg, 695 A.2d at 1354 (citing Virginia Electric & Power with approval).
25. See, e.g., United States v. 9.345 Acres of Land, No. 11-00803-JWD-EWD, 2018 U.S. Dist. LEXIS 68664, at *13–14, *27 (M.D. La. Apr. 24, 2018).
26. United States v. 10.082 Acres, No. CV05-00363-PHX-NVW, 2007 U.S. Dist. LEXIS 22604, at *33–34 (D. Ariz. Mar. 27, 2007).
27. See United States v. 1.604 Acres of Land, 844 F. Supp. 2d 668, 674 (E.D. Va. 2011) (granting motion to exclude project and government influence evidence due to insufficient showing that letter of interest from government actually affected property’s value). See also United States v. 2,353.28 Acres of Land, 414 F.2d 965, 971 (5th Cir. 1969) (holding that lower court should have allowed evidence of change in market value preceding administrator’s testimony before Senate, which was “earliest disclosure by a project official that the [landowner’s] land probably would be taken”); United States v. 8,968.06 Acres of Land, More or Less, in Chambers & Liberty Ctys., Tex., 326 F. Supp. 546, 550 (S.D. Tex. 1971) (granting motion in limine to exclude impact of prospective taking when assessing likelihood of issuance of permits that would increase land value).
28. See United States v. Fuller, 409 U.S. 488, 490 (1973) (noting that “generally the highest and best use of a parcel may be found to be a use in conjunction with other parcels”).
29. In an opinion arising from a condemnation action, the Arizona Court of Appeals cited several ways in which a pre-condemnation announcement could reduce property values by decreasing the use and enjoyment of that property:
A public announcement of a planned project may result in tenants moving out, see, e.g., Foster v. City of Detroit, 254 F. Supp. 655 (E.D. Mich. 1966), land may become unsalable, see, e.g., Eckhoff v. Forest Preserve District, 377 Ill. 208, 36 N.E.2d 245 (1941), maintenance of land and buildings may cease . . . ordinances preventing new construction may be passed, see, e.g., Hunter v. Adams, 180 Cal. App. 2d 511, 4 Cal. Rptr. 776 (1960), and police protection may cease, thereby encouraging vandalism, see, e.g., In re Elmwood Park Project Section 1, Group B, 376 Mich. 311, 136 N.W.2d 896 (1965). Furthermore, when property is condemned in a piecemeal fashion, the condemning authority itself may help to prematurely blight the area and an owner whose lot is one of the last acquired is forced to absorb the declining market value which usually accompanies piecemeal condemnation. See City of Cleveland v. Carcione, 118 Ohio App. 525, 190 N.E.2d 52, 5 A.L.R. 3d 891 (1963).
Uvodich v. Ariz. Bd. of Regents, 453 P.2d 229, 234 (Ariz. Ct. App. 1969) (cleaned up).
30. Cf. Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 477–78 (1973) (holding that improvements were compensable up to the value of their useful life); Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1015–16 (1992) (considering diminution of economic value in regulatory takings analysis and holding that loss of all productive use of land constitutes per se taking).
31. See Kirby Forest Indus. v. United States, 467 U.S. 1, 10 n.15 (1984).
32. Id. at 10.
33. See United States v. Miller, 317 U.S. 369, 377 (1943) (reasoning that because project, “from the date of its final and definite authorization in August, 1937, included…one probable route…marked out over the respondents’ lands,” it was “proper to tell the jury that the respondents were entitled to no increase in value arising after August, 1937, because of the likelihood of the taking of their property”); see also United States v. Reynolds, 397 U.S. 14, 21 (1970) (holding that, in determining project’s scope, “[i]t need only be shown that, during the course of the planning or original construction, it became evident that land so situated would probably be needed for the public use”).
34. See Fed. R. Civ. P. 71.1(h)(2)(A) (permitting judge in condemnation action to “appoint a three-person commission to determine compensation because of the character, location, or quantity of the property to be condemned or for other just reasons”).
35. See Reynolds, 397 U.S. at 20 (describing role of fact-finder in just compensation inquiry).
36. See, e.g., Christopher Serkin, The Meaning of Value: Assessing Just Compensation for Regulatory Takings, 99 Nw. U. L. Rev. 677, 696–99 (2005) (identifying problems that arise when selecting a valuation date).
37. Cf. id. at 21 (“As with any test that deals in probabilities, [the scope-of-the-project rule’s] application to any particular set of facts requires discriminating judgment.”).
38. Perhaps the most obvious and extreme example of this scenario would be a fire that destroyed the property’s structures and enhancements. Courts have acknowledged the existence of “condemnation blight” arising from less drastic instances, however. See, e.g., Foster v. City of Detroit, 254 F. Supp. 655, 661–62 (E.D. Mich. 1966) (finding city’s pre-condemnation announcement partly responsible for property’s devaluation while acknowledging that national trend of abandonment of inner cities also contributed).
39. As for the burden of proving the exogeneity of the event and the magnitude of its effect on the property’s value, the asymmetry of the information between the owner and the government suggests that the latter is generally better equipped to make the proper showing and thus should be required to do so. The Fifth Circuit has held that once the scope-of-the-project rule has been triggered, “it may fairly be presumed that any depreciation in value is attributable to the threat of condemnation, and that any increase in value is attributable to the Government’s special demand for the property and its actions as condemnor.” 320.0 Acres of Land, 605 F.2d at 807. The rule is triggered once “the prospect of imminent condemnation becomes sufficiently definite that it would be a major factor in the decision of any reasonable person to buy or develop the property.” Id.
40. Reynolds, 397 U.S. at 16.
43. Olson v. United States, 292 U.S. 246, 255 (1934) (emphasis added).