STEWART & GRINDLE, INC., Appellant, v. STATE of Alaska, Appellee. Leslie B. PACE, Appellant, v. STATE of Alaska, Appellee. Robert J. ROGERS, Appellant, v. STATE of Alaska, Appellee.
Nos. 1941, 1982, 1986.
Supreme Court of Alaska.
June 12, 1974.
As Modified on Rehearing July 22, 1974.
524 P.2d 1242
Richard P. Kerns, Asst. Atty. Gen., Anchorage, John E. Havelock, Norman C. Gorsuch, Attys. Gen., Juneau, for appellee.
Before RABINOWITZ, Chief Justice, CONNOR, BOOCHEVER and ERWIN, Justices, and DIMOND, Justice Pro Tem.
OPINION
BOOCHEVER, Justice.
In these three cases consolidated for review, owners of vacant, unimproved land condemned by the state appeal from the denial of their motions for interest, costs and attorney‘s fees.
The State of Alaska needed Stewart & Grindle‘s property for the 30th Avenue Couplet Highway Project. On July 29, 1971, the corporation was offered $94,900 for its property. This offer was rejected, and on March 23, 1972, the State filed a condemnation action to acquire the appellant‘s realty. At the hearing on the States motion for an order of necessity and authority for the taking, the State disavowed any intention to seek immediate possession. The matter was referred to a master, and on August 28, the master filed his report finding the amount of $142,500 to be just compensation for the property. On September 22, after the time for appeal had expired, the parties stipulated to the sum of the master‘s appraisal pursuant to
Leslie Pace and his co-owners, Arthur Guess, Jr., Keith McGranahan, and Belton Stephens, d/b/a Adriatic Land Co., were also casualties of the highway project. These appellants declined the State‘s offer of $85,000 as compensation for their property, and a complaint was filed on March 23, 1972. After the matter had been referred to a master, but before the master had conducted a hearing as to the value of the property, the State tendered a much more generous offer in the sum of $186,000, which appellants accepted. This sum was deposited in the court registry on December 22. On April 11, 1973, the court denied appellant‘s motion for interest from the date of filing, for an assessment against the State of appellants’ appraisal costs of $1,600, and for attorney‘s fees of $1,100.
In connection with the same highway project, Robert Rogers was offered $50,000 for his acreage. Upon rejection of its offer, the State instituted condemnation proceedings on March 23, 1972. The task of ascertaining just compensation was referred to a master, and he valued the property at $92,500 in a report filed on September 25. The parties stipulated to that amount on October 19, and on November 14, the State deposited $92,500 in the court registry. On April 11, 1973, the court denied appellant‘s motion for interest, for costs of an appraiser in the sum of $200, and for attorney‘s fees of $1,000.
I. PRE-SETTLEMENT INTEREST
The appellant property owners contend that the court below erred in denying their motions for interest running from the date eminent domain proceedings were instituted to the date of payment into the court registry, upon the amount each accepted as just compensation.
Alaska statutorily provides for the payment of interest in eminent domain actions only where the State enters into immediate actual or constructive possession. If the State requires immediate use of the property,1
If an order is made letting the plaintiff into possession, as provided in § 380 of this chapter, the compensation and damages awarded shall draw lawful interest from the date of the order.
And where the State takes immediate legal title by filing a declaration of taking and depositing estimated just compensation into the court pursuant to
The compensation shall be ascertained and awarded in the proceeding and established by judgment. The judgment shall include interest at the rate of six per cent per year on the amount finally awarded which exceeds the amount paid into court under the declaration of taking.
There is no statutory provision for payment of interest from the date a condemnation action is instituted where the property owner remains in possession, and it has long been recognized that unless interest is specifically authorized by legislative enactment, it may not ordinarily be assessed against the State in any action.2 Consequently, the property owners’ reliance upon our holding in State v. Phillips3 is misplaced. In Phillips, we ruled that under
It is well established, however, that the payment of interest is, in appropriate circumstances, a necessary component of constitutionally guaranteed just compensation.9 As we stated in Russian Orthodox Greek Catholic Church of North America v. Alaska State Housing Authority:11
[The fifth amendment to the U. S. Constitution and
art. I, § 18 of the Alaska Constitution require] that a property owner be compensated for delays incurred between the dates of the government‘s taking of property and making payment. If an award were paid immediately upon the taking of the land by the state no damages to the property owner would ensue. But where, due to the necessity of legal proceedings to ascertain fair market value of property, delays ensue, the property owner is entitled to an adequate sum to reimburse him for the loss of use of the money during the period of such delay. To hold otherwise would constitute a taking of the property without just compensation [footnote omitted].12
Before interest can accrue then, there must be a taking.13 Whether the landowners here are entitled to interest turns on whether the commencement of eminent domain proceedings constitutes a constitutionally-compensable appropriation of property.
It is the general rule that a taking does not occur until: 1) legal title vests in the State, 2) the State enters into actual possession, or 3) the State takes constructive possession either by causing damage to property or by depriving the owner of full beneficial use of his land.14 A number of courts have specifically held that interest running from the date of institution of eminent domain proceedings may not be recovered.15 Most of the decisions which have awarded interest from the commencement of suit turned on statutory interpretation or application.16
A considerable period of time can go by after the filing of the complaint before compensation is paid to the landowner. In the meantime, the landowner remains responsible for the payment of taxes, plus interest payments on a mortgage, if any. These expenses cannot be considered by the commissioners or the jury, nor can they take notice of any rise in value of the property since the filing of the complaint.
* * * * * *
In the present case the Nordstroms’ land was vacant, unimproved acreage, which produced no income stream to be applied in abatement against interest. The economic purpose of such investment landholding is readily apparent: By purchasing the unimproved land, the Nordstroms undoubtedly hoped that the land would increase in market value at a rate which would more than offset taxes and interest payment on mortgage loans . . . . Profit would be generated upon the eventual improvement or sale of the property. By filing a complaint in a condemnation action, however, the State effectively foreclosed the possibility of improving the property or selling it to a third party while the proceedings were pending. . . . The landowner‘s property is virtually straitjacketed, but tax and mortgage obligations continue unabated.18
We find this analysis sensitive to the economic realities of public condemnation. Before the institution of an eminent domain action, possession of unimproved and untenanted property is a desirable economic asset if: 1) the property may appreciate in value; and 2) the owner is afforded the opportunity to improve the property toward whatever end he might desire.19 Under the Alaska statutory scheme, an owner is deprived of both investment potential and the possibility of future development the moment a condemnation action commences.
For the purpose of assessing compensation and damages the right to them accrues at the date of issuance of the summons, and its actual value at that date is the measure of compensation of the property to be actually taken. . . . No improvements put upon the property after the date of the service of summons shall be included in the assessment of compensation or damages.
Meanwhile, the owner remains liable for property taxes, mortgage payments, and any other expenses incidental to legal ownership. Indeed, the property is of less value to him in his own name than it would be had the State taken immediate legal possession under a declaration of taking, for at least in the latter case he would be delivered from the burden of the property taxes. If as a matter of constitutional law the property owner is entitled to interest from the moment the State takes legal possession, he should, a fortiori, receive interest where he has been deprived of all the economic advantages of legal ownership but is relieved of none of the liabilities.20
We conclude that the institution of condemnation proceedings constitutes a compensable appropriation of vacant and unimproved land, and that the property owner is constitutionally entitled to interest dating from the institution of such proceedings.
In assessing interest against the State running from the date of institution of suit we are not saddling the State with an unavoidable financial burden. It may toll the running of interest at any time upon any sum it deposits with the court.21 And the State can minimize the risk of an interest assessment (and avoid the expenses of litigation) by making a reasonable offer which the property owner is likely to accept prior to the institution of legal proceedings.
Had appellants been deriving rents and profits from the use of their land, these sums would, of course, be set off against the interest owed by the State.22 As the court in Arkansas-Missouri Power Co. v. Hamlin23 correctly noted:
Interest as so allowed by the weight of authority is not interest eo nomine, that is, interest as such and in the commonly accepted sense, but [is] a substitute or means of measuring the value of the deprivation of the use of the property.
Since none of the appellant‘s land was being productively used, no problem of adjustment arises.
The denial of interest running from the date of commencement of suit is reversed. On remand, the trial judge should calculate the amount of interest due on the amount finally settled upon by each appellant and the State, at the rate of six percent.24
II. APPRAISERS’ AND ATTORNEY‘S FEES
The property owners also assign as error the refusal of the court below to tax their attorney‘s and appraisers’ fees against the State.
Costs and attorney‘s fees incurred by the defendant shall not be assessed against the plaintiff, unless
(2) the award of the court was at least ten (10) percent larger than the amount deposited by the condemning authority or the allowance of the master from which an appeal was taken, or
(4) allowance of costs and attorney‘s fees appears necessary to achieve a just and adequate compensation of the owner.
The property owners contend that these cases should be governed by
We must reject this reasoning despite the invocation of an intelligent policy. Just as they have refused to assess interest against the state,25 courts have also traditionally declined to tax litigation expenses and attorney‘s fees against the sovereign in the absence of express statutory authority.26
We also agree with the appellee that the appellants’ reliance on
The procedure for the condemnation of property under the power of eminent domain shall be governed by these rules, except as otherwise provided in this rule.
However, we hold that under the circumstances presented by the cases at bar, the property owners are entitled to recover attorney‘s and appraisers’ fees under
Under present-day conditions the traditional approach of requiring a condemnee, in all cases, to bear the expense of legal fees and expert witnesses is inequitable and an unfair burden placed upon the landowner . . . If the average defendant is in court, it is usually because he has committed an act of commission or omission. A condemnee becomes a litigant merely because he owns land that the sovereign wishes to acquire. The sovereign must pay just compensation for such land. Does a condemnee receive just compensation or is he “made whole” if he must expend large sums of money to insure that he gets a fair price for his land? We think not.29
We believe that
We think it is apparent that the appraisers’ and attorney‘s fees were “necessarily” incurred in these cases. Each appellant‘s property consisted of a large tract of unimproved land. Parcels of land the size of those involved here do not have a readily ascertainable market value, as do, for example, subdivision lots where numerous transactions in lots of comparable size and quality establish the appropriate market value with some accuracy. Therefore, it is evident that the services of professional appraisers were essential before the property owners could determine whether to accept the State‘s offer. And the grossly inadequate amount of the State‘s initial tender could reasonably have led the property owners to believe that it would be necessary to retain an attorney in order to obtain just compensation for the taking of their property.
We do not agree with the State‘s assertion that to allow attorney‘s and appraisers’ fees in the case at bar “would be tantamount to granting costs and attorney‘s fees in every condemnation action.” Where the property to be taken has a readily ascertainable market value, or is worth too little to warrant a professional appraisal, an appraiser‘s fee could not be said to be “necessary“, and the property owner would not be entitled to compensation for such an expense. Similarly, where the property has a readily ascertainable market value and the State has offered at least that amount, any attorney‘s fees subsequently incurred would not be necessary in order to obtain just compensation, and would accordingly be disallowed.
The denial of an award of appraisers’ and attorney‘s fees is reversed, and these cases are remanded to the superior court in order to establish the reasonable value of services rendered by appellants’ appraisers and attorney.
Reversed and remanded.
FITZGERALD, J., not participating.
ON PETITION FOR REHEARING
The State has petitioned for a rehearing seeking clarification of that portion of the court‘s opinion which reads:
Civil Rule 72(a) makes the provisions ofCivil Rule 72 the exclusive procedure in eminent domain, except where otherwise expressly provided . . . .
The procedure for the condemnation of property under the power of eminent domain shall be governed by these rules, except as otherwise provided in this rule.
Petitioner correctly points out that in State v. 1.163 Acres, More or Less, Chuckwm, Inc., 449 P.2d 776, 778 (Alaska 1968),
The phrase “these rules” refers to all of the other rules of the Alaska Rules of Court Procedure and Administration. The phrase “except as otherwise provided in this rule” means that
Civil Rule 72 shall govern eminent domain proceedings. Where a specific procedure is not provided byCivil Rule 72 , then any of the other rules of practice and procedure are available, to the extent that they may be applicable.
We hereby affirm this construction of
The petition for rehearing is granted, and the opinion is modified to the extent provided above.
