Author: molson

Reservations Required

As infrastructure upgrades and improvements become an increasingly prominent feature of the public policy landscape, issues relating to eminent domain and condemnation will rise to the forefront of the public consciousness. Any time a private business is impacted by eminent domain or condemnation proceedings, business owners are forced to grapple with logistical complexities and financial penalties.

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What CEOs need to know and how they should respond when faced with a land seizure?

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 Outdated infrastructure and the pressing need for energy grid upgrades, new rapid transit systems, and energy and mineral rights are driving the trend.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.

Only 2 Cases Remain in More Than Dozen Filed Over New Bridge to Canada

Chad Halcom/Crain’s Detroit Business — A long trawl of litigation may be nearly over for Ambassador Bridge owner Manuel “Matty” Moroun and the Detroit International Bridge Co., while the courts’ attention drifts downriver soon, to the planned Gordie Howe International Bridge.

Of the dozen-plus lawsuits to crop up since 2009 involving Moroun, his bridge company, various government agencies and neighboring landowners, only two cases are still pending — and U.S. District Judge Rosemary Collyer dismissed most of one last week.

An appeal in the same lawsuit, still awaits oral arguments Oct. 19 at the U.S. Court of Appeals in Washington, D.C., and another 2013 lawsuit in Washington is still pending.

“This guy (Moroun) never gives up,” said Richard McLellan, owner of McLellan Law Offices PLLC in Lansing, who had consulted on a previous version of the international bridge agreement that floundered in the state Legislature a few years ago. “I think he definitely has the potential to create new law in this case. It’s just not necessarily to his advantage.”

Timothy Mullins, chairman of the government law section at Giarmarco, Mullins & Horton PC in Troy, also noted the bridge company was persistent but unlikely to prevail in the Washington court case. But then, having the stronger legal argument may not be the point.

“The company has spent an awful lot of money to delay the public bridge process,” he said. “But if you took the amount of money he’s spent (in court) and compare it with the amount the bridge makes, then probably every year he can delay things it’s still a profitable venture.”

The Ambassador Bridge is widely believed to have generated around $60 million in annual revenue in recent years. The DIBC has said a government bridge could siphon as much as 70 percent of its traffic, although a traffic study from public bridge supporters estimates it would take 31.1 percent of Ambassador’s commercial truck traffic and 12 percent of auto traffic by 2035.

The bridge has historically accounted for more than one-quarter of all commercial traffic between the U.S. and Canada. Moroun, a trucking industrialist who bought the Ambassador in 1979, has been in litigation through the bridge company for years over both the public span project and his own proposed private second span to be built alongside the Ambassador.

But even as that litigation winds down, Wayne County Circuit Court may be about to hear dozens of eminent domain suits from state Transportation officials against property owners in Detroit’s industrial Delray neighborhood, where the Gordie Howe bridge is expected to land.

Chief Circuit Judge Robert Colombo issued a “docket directive” last month, ordering any lawsuits MDOT expects to file condemning property for bridge purposes to be initially assigned to him.

The cases will then be randomly reassigned to various civil court judges after Colombo handles preliminary matters, like transfer of title and challenges to the necessity of taking land — a protocol that suggests the court expects a fairly large MDOT case volume shortly.

“There was a time we were told the bridge authority didn’t want to file in court and could work this out on their own,” said Alan Ackerman, managing partner of Bloomfield Hills-based Ackerman, Ackerman & Dynkowski PC and attorney for more than 15 property owners near the proposed crossing site.

“But I don’t think they have interest in doing anything else but going to court, at this point.”

Collyer dismissed seven out of nine counts in a 2010 Detroit International Bridge lawsuit against the U.S. State Department, U.S. Coast Guard, Federal Highway Administration, the government of Canada and several federal cabinet members and department heads, in a ruling that said the bridge company was overstating its claims under a 1921 franchise agreement authorizing the bridge.

An eighth claim, stemming from allegations the Coast Guard held up a requested permit for a second bridge span alongside Ambassador for over a decade, was dismissed earlier but is under review at the appeals court in Washington.

The bridge company claims the Coast Guard’s permit actions have served as a delay tactic, while Michigan and Canada prepare to open the public Howe bridge about two miles away by 2020. Mickey Blashfield, director of government relations for the bridge company, declined to comment on any of the litigation last week.

Only one claim, that the State Department entered an international crossing agreement without congressional action and that Michigan entered it without legislative action, is going forward.

Robert Sedler, a professor of constitutional law at Wayne State University Law School and part of the Moroun bridge company’s legal team in the Washington court case, crafted the legal argument for that surviving court claim. He said last week that Gov. Rick Snyder essentially lacked authority to unilaterally enter a bridge crossing deal with Canada.

That argument could get some traction, some observers said. “None of the arguments that got dismissed (by Collyer) made any sense. The one that didn’t get dismissed makes some sense, but it’s not a showstopper,” Ackerman said of the Sedler argument. “It’s probably a stretch to think he (Moroun) will win it, but it comes close.”

The Coast Guard has rejected the bridge company’s permit application in part because Moroun had not yet obtained all the land on either side of the river necessary to build the second span — a feat that Moroun’s attorneys contend isn’t required for permit purposes.

Mullins said governments can be limited by their contract agreements, like the kind that a predecessor company to Moroun’s first reached to authorize a toll bridge crossing over 80 years ago. But it was unrealistic of Moroun’s legal team to expect its own agreement was enough to constrain both governments from developing another bridge.

He also said the Coast Guard is likely to prevail on the permit dispute as well.

“It’s an argument, and he (Moroun) is welcome to make it,” he said.

McLellan contends the Michigan constitution, in Article 3, specifically authorizes the state to “enter into agreements…(to carry out) their respective functions” with the government of Canada, a power the state has invoked on several other occasions as well as in the bridge deal last year.

But Sedler counters that provision is “subject to provisions of general law,” or statutes enacted by the Legislature.

To view the article, visit Crain’s Detroit Business.

MDOT Starts to Buy Land in Delray for Gordie Howe Bridge

John Gallagher/The Detroit Free Press — The much-delayed process of buying land in southwest Detroit for the planned Gordie Howe International Bridge is finally about to begin in earnest.

The Michigan Department of Transportation has begun sending letters to residents of Detroit’s Delray district to let them know about three public information sessions set for early June for property owners whose homes have been identified as falling within the project footprint.

MDOT’s three public open houses are set for June 2 (1 -7 p.m.), June 3 (10 a.m.-6 p.m.), and June 4 (10 a.m.-6 p.m.). All the open houses will be held at the Delray Neighborhood House, 420 Leigh St.

Alan Ackerman, a Bloomfield Hills attorney who represents some of the property owners in the district, said Friday that many Delray owners will greet the land buys with a sense of relief. Plans for the new bridge have been in the works for years, leaving many in Delray expecting a buyout offer but not knowing when or if it would come.

“There has been a whole lot of pain in the waiting,” he said. “Canada and MDOT finally look like they are really moving forward. Now owners of businesses and homes have some certainty, we would hope.”

Land is needed to accommodate both the approaches to the bridge as well as the planned U.S. Customs and Border Protection inspection plaza. About 700 parcels in all must be obtained at an estimated cost of $370 million.

As with other portions of the bridge project, Canada will pay for the land acquisition and be paid back through future tolls. The Gordie Howe International Bridge is expected to open to traffic in 2020.

In MDOT’s letters to homeowners, the department said that staffers will be available for one-on-one meetings at the open houses to discuss relocation assistance and other concerns.

In a second letter to commercial property owners, MDOT said it is expected to take two to three years to relocate all the businesses and residences from the project footprint.

To view the article, visit The Detroit Free Press.