Inverse Condemnation

The term inverse condemnation refers to the taking or damaging of a person’s real property by a government entity, without payment of just compensation. This issue is related to the government’s responsibility under the Fifth Amendment’s eminent domain provision. In such cases, the property owner is faced with the prospect of suing the government in order to obtain compensation. To explore this concept, consider the following inverse condemnation definition.

Definition of Inverse Condemnation

Noun

  1. The taking of land, by a government entity, without providing just compensation.
  2. A legal action brought against a government entity for the taking of private property without formal or proper exercise of eminent domain.

What is Inverse Condemnation

The Fifth Amendment to the U.S. Constitution places strict limits on the government’s ability to take a person’s private property, stating:

“… nor shall private property be taken for public use, without just compensation.”

This clause, called the “Takings Clause,” is commonly referred to as “eminent domain,” and provides that property may be taken for “public use,” but only with just compensation to the property’s owner. Eminent domain, or “condemnation” of private property, can be exercised by federal, state, and local government agencies. This might include any agency from the local sewer and public works department, to the U.S. Forest Service.

It is possible that a private company be granted the power to condemn or take property in the name of a government authority, in order to accomplish a project intended to benefit the public. For instance, a private redevelopment company might be tasked with the revitalization of a depressed area of the city, and given authority to obtain a certain area of properties through eminent domain. All this would be done by the authority of the city government.

As an example of inverse condemnation, consider that the City of Sunshine decides to upgrade the city’s sewer system. The City hires a construction company to run new sewer lines in the areas of expansion, and to repair lines in the older portions of the city. This authority extended to acquiring property for a new water treatment plant.

The installation of the plant took a large portion of QuickMart’s parking lot. What was left made it very difficult for customers to come in and out of the market, and within a few months, the business closed. In this example of inverse condemnation, the owner of Quick Mart was compensated for the square footage of property obtained by the construction company in the name of the City.

The actions of the City, however, resulted in the failure of his business, and the rendering of the property unsuitable for its original purpose. The property owner might file an inverse condemnation lawsuit seeking just compensation for the value of the business he lost.

Other circumstances in which a private entity might be given the authority to take property for use that is considered to be for the public include expansion of a railroad, facilities built by privately-owned utility companies, or the building of an oil pipeline by a privately-held gas company.

Inverse Condemnation of Something other than Real Property

Technically, the taking of property need not only refer to real property. The taking of personal property, contracts, or even intellectual property, without just compensation, falls under the inverse condemnation umbrella. In some circumstances, the damaging of a person’s property during the performance of an eminent domain activity, can fall under inverse condemnation, giving the property owner the right to be compensated.

Regulatory Taking under Inverse Condemnation

The most common forms of taking occurs when the property is seized by the government, retained by the government after its lease expires, or the property owner is deprived of access. There is another way in which property can be essentially taken from its owner – through the creation of regulations that are so burdensome that is makes the property unusable by its owner, for any economically or otherwise reasonably viable purpose. This is referred to as a “regulatory taking” under inverse condemnation.

Regulatory taking is the most controversial form of inverse condemnation, and was addressed by the U.S. Supreme Court in a 1922 ruling, in which Justice Wendell Holmes, Jr. explained that, “… while property may be regulated to a certain extent, if regulation goes too far, it will be recognized as a taking.” The test of whether a regulation goes “too far” lies in whether it deprives the property owner of the property’s value, marketability, or usability. By depriving the owner of the benefits of property ownership, a taking has occurred, without compensation.

Inverse Condemnation Lawsuit

While eminent domain is a thing initiated by the government – when they take property for the public good, in exchange for just compensation – inverse condemnation is a thing initiated by the property owner. An inverse condemnation lawsuit seeks to obtain fair payment for a property – or for the additional loss of value of property not taken.

The time in which a person has to file an inverse condemnation lawsuit – the statute of limitations – varies by state, as does the specific procedure. For this reason, it is a good idea to consult with an attorney that specializes in condemnation law.

A property owner who initiates an inverse condemnation lawsuit seeks to receive just compensation for their property, which is guaranteed under the Constitution. Some states even guarantee their people “full compensation” for their property. Such compensation might be for a portion of the property that was made unusable (a “partial taking”), or for the amount by which the entire property’s value was reduced by the government’s partial taking.

To determine how much this should be, the property owner should consult an expert in property valuation, and obtain an amount for the property, or portion of it, at its best and most valuable use.

Elements of Inverse Condemnation

At trial, there are certain elements of inverse condemnation that must be proven in order to be successful. These include:

  • The plaintiff has a financial or monetary interest in the property
  • The property was taken, or was damaged, by the government or its agent
  • The project for which the property was taken was planned, approved, or participated in by a government agency
  • The taking of the property, or damage to it, was substantially caused by the government’s activity

Inverse condemnation trials are typically split in two – requiring that the above elements of inverse condemnation be proven first. Once all of these elements of inverse condemnation have been proven, the property owner will need to prove the value of the property, or the portion of it, that was taken, damaged, or rendered unusable.

Inverse Condemnation Example in Taking of Personal Property

The Secretary of Agriculture is authorized to issue “marketing orders” to help keep the agriculture and produce market stable by ordering farmers and other producers to withhold a portion of their crops in order to not flood the market. In 2002-2003, raisin growers in the U.S. were ordered to set aside 47% of their crops, and in 2003-2004, 30% of their crops.

Those raisins were to be given over to the federal government – free of charge – which then sells them in non-competitive markets, donates them, or disposes of them, as it sees fit. If there is a profit after the government subtracts its expenses for administering the program, they are distributed among the growers.

Marvin and Laura Horne, raisin growers in California, refused to comply with setting aside such a large percentage of their family’s income without compensation. They were fined what the government said was the fair market value of the raisins – nearly $700,000 – the Hornes had withheld from the government.

The Hornes appealed in this inverse condemnation case, claiming that the marketing order amounted to an unconstitutional taking of their property. The Ninth Circuit court found that, because the government hadn’t invaded the Hornes’ property, or directly taken possession of the raisins, and because the Hornes maintained a financial interest in the raisins (if there was a profit made by the government), there was no “taking.”

The Ninth Circuit went so far as to say that the Hornes could avoid losing such a large percentage of their crop by planting different crops. In addition, that court determined that the Hornes’ case could only be decided by the Court of Federal Claims.

The U.S. Supreme Court did not agree, however, on the jurisdiction matter, ruling that the district court has jurisdiction to hear equity cases, reviewing rulings made by the Secretary of Agriculture against handlers. The case was remanded back to the Ninth Circuit, which again decided that the taking of personal property did not require just compensation.

The Hornes’ case was taken back to the Supreme Court, which reversed the lower court’s ruling. It held that:

“A physical taking of raisins and a regulatory limit on production may have the same economic impact on a grower.”

And:

“The Constitution, however, is concerned with means as well as ends. The Government has broad powers, but the means it uses to achieve its ends must be “consist[ent] with the letter and spirit of the constitution.”

Related Legal Terms and Issues

  • Appellate Court – A court having jurisdiction to review decisions of a trial-level or other lower court.
  • Personal Property – Any item that is moveable and not fixed to real property.
  • Real Property – Land and property attached or fixed directly to the land, including buildings and structures.

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