Today, on behalf of the National Association of Home Builders and the Wisconsin Building Association, we filed this brief amici curiae in City of Milwaukee Post No. 2874 Veterans of Foreign Wars of the United States v. Redevelopment Agency of the City of Milwaukee, No. 09-1204 (cert. petition filed Apr. 2, 2010).
The brief argues that the “undivided fee rule,” as applied by the Wisconsin Supreme Court, violates the Fifth Amendment’s Just Compensation Clause because it requires that the value of a leasehold interest which would be worth over $1 million if condemned separately be valued at zero. Most eminent domain attorneys know about the infamous undivided feerule (aka as the “unit rule” in some jurisdictions), a legal fictionwhich requires a trial courtto calculate valuation of property as if a single owner possessedeverything, even when it is held by more than one interest. Under therule, the condemnor is not required to compensate eachseparate interest in the property, but treats the property as if it hadone owner.
Forexample, ifa condemned building is being leased to tenants, compensation ismeasured by the value of the undivided fee simple absolute value of thebuilding, not the aggregate value of the building and the leases. Thebuilding owner and the tenants must divide up the condemnation award bycontract. In many if not most cases, the rule is uncontroversial. Butin a few cases its rigid application works very unusual and unfairresults.
In City of Milwaukee Post No. 2874 Veterans of Foreign Wars of the United States v. Redevelopment Agency of the City of Milwaukee, 768 N.W.2d 749 (Wis. 2009), a sharply divided Wisconsin Supreme Court applied the rule to conclude first that a tenant who owned an admittedly valuable long term lease ($1 rent per year, plus goodies) was not entitled to any compensation because the value of the building was zero.We deconstructed the opinion in this post: Wisconsin Supreme Court: The Whole Is Lesser Than The Sum Of Its Parts.
The VFW’s cert petitionpresents the following questions:
When the Milwaukee Redevelopment Authority took byeminent domain the 11-story downtown building that housed the officesof Post 2874 of the Veterans of Foreign Wars (VFW) as a long-termlessee, the Wisconsin Supreme Court held 4 to 3 that—as a matter oflaw—the VFW was not entitled to present any evidence of value, norentitled to recover any compensation whatever for its concededlyvaluable long-term leasehold.
The questions presented are:
1.Does it violate the 5th and 14th Amendments for Wisconsin—like somejurisdictions, but in conflict with others and with this Court’srepeated insistence that the appropriate question in an eminent domainproceeding is “what has the owner lost, not what has the takergained”—to apply its “undivided fee rule” in such circumstances?
2.Did the court below violate VFW’s constitutional right to due processof law by precluding it, as the owner of a valuable interest inproperty being taken through eminent domain, from introducing anyevidence of the value of its leasehold property?
The petition points out the split of authority inthe lower courts on the applicability of the undivided fee rule. Sometwenty states (Hawaii included) apply the rule regardless of thecircumstances. Seven other jurisdictions neverapply the rule. Still others (eight states and several federal courts)apply the rule, but are willing to deviate from it when its applicationwould deny just compensation. A split of authority is one of the suresttickets to Supreme Court review. To add to this case’s chances, theCourt has appeared to be interested in the question of justcompensation recently. During the oral arguments in Kelo v. City of New London, for example, two Justices asked counsel about it, even though just compensation was not at issue in that case.
The petition sums up the basic issue, and the equities:
Thequestion is whether valuation by this fictional technique satisfies the5th and 14th Amendments’ guarantee that those whose property iscommandeered for public use will receive just compensation, usuallydefined as fair market value. The result below speaks eloquently. TheVeterans of Foreign Wars received $0 as compensation for a long-termlease, a lease that the majority opinion had to concede had value, eventhough application of the undivided fee rule forbade the VFW frompresenting any evidence as to that value or receiving any compensationfrom the Redevelopment Authority for its taking.
Petition at 4-5. Our amici brief argues:
The “undivided fee” rule – a rule of convenience under which a court will not value a leasehold interest separately if it is condemned along with the fee simple estate – cannot override the Fifth Amendment’s guarantee of just compensation when property is taken.
A uniform standard is sorely lacking and the Wisconsin Supreme Court’s rigid application of the undivided fee rule resulted in the literal evaporation of what was acknowledged by all parties to be a valuable property interest. The Private Property and Just Compensation Clauses require more.
Leaseholds are”property” protected from uncompensated takings by the Fifth Amendment, and if the VFW’s lease alone had been condemned, there would be no question it would be entitled to compensation and to have a jury determine the lease’s value. See, e.g., United States v. General Motors Corp., 323 U.S. 373, 380 (1945) (“The right to occupy, for a day, a month, a year, or a series of years, in and of itself and without reference to the actual use, needs, or collateral arrangements of the occupier, has a value.”). The Wisconsin court’s application of the undivided fee rule to value that lease at zero as a matter of law simply because the fee simple interest was also being acquired – and to prohibit the VFW from presenting evidence of the lease’s actual value to the jury – ignored its status as Fifth Amendment property, entitled to recognition independent of the fee simple interest, and separate valuation.
This Court should grant the writ of certiorari to review the Wisconsin Supreme Court’s conclusion that in eminent domain law, somehow the whole can be lesser than the sum of its parts.
Br. at 4-5 (emphasis original). More to follow if and when a brief in opposition is filed.