With infrastructure upgrades and improvements likely to remain a legislative priority and a practical necessity for years to come, eminent domain proceedings will continue to emerge as a prominent issue that business owners will be forced to confront. Unavoidable conflicts of interest are often the result, as competing priorities of the private companies and government agencies that initiate these actions and the private property/business owners impacted by the proposed seizure come to a head.
A partial taking, the seizure of one segment of an existing property or business operation, is the most common form of eminent domain. Typically intended to widen roads or make critical infrastructure upgrades, such an action can have a significant (and often under appreciated) impact on the value of a piece of property and, subsequently, on the bottom line of a business. Calculating the potential business effect of a seizure requires accurate accounting of all the functional and financial implications, many of which may not be immediately obvious. From the perspective of CEOs and other C-level executives, that calculation is further complicated by the costs and complications of engaging in complex—and potentially very public—litigation.
Because of the unique challenges and significant liabilities that can arise from the seizure of even a small piece of property, CEOs and business owners need to understand what to do (and what not to do) in the event that they are faced with this increasingly common phenomenon.
Impact & Implications
The reality is that, while nothing is ever certain in politics, there is good reason to believe that the current government commitment to spend more money on energy and infrastructure-related improvements will continue the eminent domain momentum. Outdated infrastructure and the pressing need for energy grid upgrades, new rapid transit systems, and energy and mineral rights are driving the trend.
From a business owner/operator perspective, the first step is to appreciate the gravity of the situation. From zoning issues and operational efficiencies to visibility, access and public perception, the ways in which the forfeiture of one piece of property can have an outsized effect on the rest of the business are numerous. As a result, the gap between what the government offers and what constitutes fair compensation can be startlingly wide. The public record is full of eye-opening cases where the final judgment far exceeded the initial offer. One public company was offered $3 million for a piece of property based on an outdated land valuation, and the case was ultimately settled for $29 million. Another $345,000 offer became a $7 million judgment once issues of contiguous use and loss of favorable environmental and zoning regulations were submitted into evidence and factored into the value equation.
The bottom line is that the government, despite best efforts, does not always have a full understanding of what the implications of a seizure might be to your business. From industry to industry and site to site, the sophisticated subtleties of how a seizure could affect the operational and financial potential of a business can vary considerably. Protecting your business demands that CEOs understand those nuances, appreciate the stakes and know how to respond when faced with a partial taking claim.
Eminent Domain & Publicly Traded Companies
For CEOs—especially CEOs of public companies—knowing precisely what steps to take in the event that your property and business face a land seizure is critical.Handling litigation is always a complex proposition for publicly traded corporations. The special requirements and obligations of publicly traded companies (which do not apply to privately held enterprises) force CEOs to confront a difficult balancing act: diligently notifying the public of the eminent domain litigation and reassuring shareholders without “telegraphing” a desire to properly protect proprietary information. When faced with a land seizure, CEOs can limit confusion and ambiguity, optimizing their chances of receiving full and fair compensation, by following these guidelines:
Understand what not to do
Upon receipt of formal notification of a proposed taking, an experienced appraiser will evaluate the property and submit an initial offer.In the event that an agreement cannot be reached and the condemning authority files a complaint to seize, what not to do becomes critically important. Do not discuss compensation issues or property values with anyone other than your attorney; do not submit an application for any new permits, variances, or other zoning or ordinance changes; do not say or do anything on the record without the approval and review of your attorney; and, do not submit proprietary documentation or allow any testing/sample taking without strict confidentiality agreements.
Confirm public use
When a condemning agency comes to acquire company property, the first thing that entity should do is determine whether the new use for the land falls under the Public Use Provision of the Constitution. If not a public use, an owner may properly defend against an acquisition.
Retain experienced counsel
It is crucial that decision-makers retain the counsel of an experienced eminent domain attorney before responding to the compensation offer. Your attorney will help you hire an appraiser who understands the ins and outs of your property, your business and your industry. The next step is to determine whether the action should be handled in-house or delegated out to private law firms. Frequently, one will find the research and preparation of the attorney as privileged, while information obtained in the corporate investigation may not be protected. An outside counsel may be of assistance in assembling information and preparing the claim. Some publicly held corporations control so many properties that the company may determine that it is in its own best interest to obtain full-time in-house representation. The difficulty with this is that the volume of eminent domain litigation can vary greatly from year to year, leaving an expensively trained employee without enough work for the specialized activity. General in-house counsel, however, is unlikely to have sufficient experience in the procedural and courtroom complexities inherent in eminent domain action.
Establish a clear delegation of authority
Whether it is the general counsel or some other official, assign one designated individual to handle all formal communications and appropriately respond to the legal challenges. This is especially important in eminent domain proceedings where a publicly held corporation is far more visible than a privately held entity.
Calculate the costs
If the acquisition is inevitable, corporations can only seek to obtain full and fair compensation for all their losses. While property owners usually receive relocation assistance and payment for a property which is totally taken, the dispute in partial takings is often extremely complex, and determining just compensation becomes much more difficult. Future earning potential, inventory and the like must be taken into consideration.
Proceed with caution
When the company learns that property is to be condemned, the Chief Executive or the designated agent should be very careful with what is disclosed to any third party.The property should be maintained and not allowed to deteriorate while awaiting the eminent domain proceeding, as the “looks” of the property will invariably affect the valuation of the property.
Do not apply for property tax re-assessments, as claims of low value on property taxes will be utilized against the property owner in a condemnation proceeding. Do not apply for rezoning or other permits without first consulting experienced counsel.Have counsel, rather than the property owner,hire an appraiser to appropriately value the just compensation.
Choose your words carefully
Finally, remember that anything the Chief Executive or agent states may be held against the company. The company should be careful in not communicating anything that is not in response to specifically requested information. A formal written reply to a written question, with time to provide a response,provides the company with the best opportunity to fully represent and comprehend the issues in the valuation process.
Partial takings and eminent domain occupy a highly specialized legal/regulatory niche. Just compensation for loss of business and/or financial hardship has to be carefully explained within very specific legal standards. As a result, it can be difficult to get paid for your business losses. With all the complexities of running a company and protecting the interests of employees (and, in some cases, shareholders), CEOs are up against challenging circumstances when eminent domain issues arise. Inexperience can create a costly and irreversible liability. Understanding what to do before those costs take their toll can literally be a multi-million-dollar difference maker.
View this article on CEOWORLD Magazine.