Pretext In Compensation Determinations: 11th Circuit Holds Landowner's Burden To Show Government Intent To Depress Value By Regulation

In United States v. 480.00 Acres of Land, No. 07-13584 (Feb. 11, 2009), the US Court of Appeals for the Eleventh Circuit (which covers Alabama, Florida, and Georgia), held "in order for a fact finding body to ignore a regulation in calculating 'just compensation' for a given piece of property, the landowner must show that the primary purpose of the regulation was to depress the property value of land or that the ordinance was enacted with the specific intent of depressing property value for the purpose of later condemnation." Slip op. at 1-2. The court also held that once a judge determines that regulation was not used to depress the value of the property pre-acquisition, evidence of improper use of regulation cannot be presented to the finder of fact.

The case involved the federal government's efforts to condemn undeveloped land in the area east of the Everglades National Park in Florida. In 1975, Dade County restricted development on this property and others to one dwelling unit per five acres. The National Park Service believed that from an "ecological perspective," these properties should have been included within the original boundaries of the National Park. At the urging of the Park Service, the County subsequently changed the density regulations to one dwelling per forty acres, and prohibited agricultural uses. The opinion sets forth what happened next:

In 1989, Congress authorized the expansion of the boundaries of Everglades National Park to include most of the area known as the East Everglades and the Appellants’ acreage. 16 U.S.C. §§ 410r-5, et seq. Congress did not provide any funding for the private land acquisition necessary for expansion until 1992, and the expansion was not fully funded until 1999. Armed with sufficient funding, the U.S. Department of the Interior filed 2,700 condemnation cases in the U.S. District Court for the Southern District of Florida beginning in 2000. Given the large amount of land and the large number of land owners involved, the district court appointed a land commission ("the Commission") pursuant to Fed. R. Civ. P. 71.1(h) to determine the just compensation due to each landowner as part of the East Everglades Acquisition Project.

Slip op. at 5. On the issue of highest and best use of the property for valuation purposes, the landowners asserted that the Park Service had improperly influenced Dade County to decrease the allowable density, and thus make the parcels cheaper to acquire. While the District Court agreed that "the government 'may not misuse its zoning powers to reduce the expense of a subsequent condemnation,'" slip op. at 7, the court relied on California v. Southern Pacific Transp. Co., 109 Cal. Rptr. 525 (Cal. App. 1973) and Assateague Island Condemnation Opinion No. 3, 324 F. Supp. 1170 (D. Md. 1971), to conclude that the landowner had not established that the "primary purpose" of the regulation was to depress the value, or that the County's ordinances were enacted with a specific intent of doing so.

The court of appeals had a choice of legal theories, since the Eleventh Circuit had not considered the issue before. It could adopt the "primary purpose" and "intent" standard used in the Second, Third, and Fifth Circuits," adopt the "nexus" standard urged by the landowners, or choose some other option. See slip op. at 22-23.

Appellants' primary argument for a "nexus standard" is their concern that a primary purpose or intent standard gives the Government a strong incentive to mask its real purpose in passing zoning restrictions behind pretextual assertions of benign purpose. It is very unlikely that the Government would ever admit that its primary purpose or motive in passing an ordinance or regulation was to depress value in anticipation of condemnation. According to Appellants, the Government will be able to benefit by depressing land values as long as they also have any other purpose for zoning regulations which would only happen in rare cases. Courts will have to engage in an intense, fact based, exploration of personal correspondence and similar evidence to determine "intent" and "primary purpose" to prohibit such conduct.

Slip op. at 31. Although the court acknowledged that these "concerns are valid," the court rejected the "nexus standard" because "[b]ad faith by regulating government entities should be the exception, not the rule. A 'mere nexus' rule also endangers the Government's right as a landowner to play a role in zoning and land use decisions." Slip op. at 31-32 (footnote omitted).  The court also held that it is a question of law -- and thus an issue for a judge -- whether the government had "intent" and its "primary purpose" was depression of value in anticipation of acquisition.